FY19 Q3 Earnings Presentation July 2019 Section 1 Business and - - PowerPoint PPT Presentation

July 2019

OneSmart International Education Group Limited FY19 Q3 Earnings Presentation

Section 1

Business and Strategy Updates

3

OneSmart VIP

1-on-1, 1-on-3 3rd–12th Grade

HappyMath

1-on-10 1-on-10

Kids STEAM

Notes

1.

In terms of revenue in 2016 and 2017, according to Frost & Sullivan

2.

Premium tutoring services refers to either 1-on-1classes priced at or above RMB 200 per hour or small group classes priced at or above RMB 120 per hour

Also covers Chinese

Focused on the Three Core Services: Plenty Room to Grow

Kids English

FasTrack English #1 premium K-12 after-school tutoring

service provider in China(1)

3 to 8 Yrs Old 3 to 8 Yrs Old Focus on STEM English

Premium K-12 1on1 Tutoring Services Premium Young Children Education Services

 #1 player in the premium tutoring services(2) market in China … yet only 2.4% share  Primarily focused on premium 1-on-1 tutoring format: － A materially different tutoring demand than class format － Personalized and highly effective, leading to outstanding study results  Premium tutoring services(2), taking 25% share of a RMB 433bn tutoring market in 2018, is

expected to grow at 16% CAGR 2017-2022, much faster than the overall tutoring market (9%)

Source: Frost & Sullivan: China’s K-12 After-School Tutoring Market Study (March 2018)

Most recognized premium tutoring brands Premium K-12 tutoring market share distribution

 HappyMath (launched in 2013) and FasTrack English (acquired in January 2018): expands

target customers base to younger population, building a future K-12 customer pool

 Fast growing demand driven by rising newborn population and increasing demand by new

generation of young parents with largely improved affordability

 Focused on the two most sought-after young children education services: － Math: #1 criteria for primary school admission considerations － English: most popular kids education services in China  Offered primarily in 1on10 small group classes, suitable to kids education

By revenue in 2017

4

1 3 2

Superior customer experience supported by personalized premium1-on-1programs that cater to the needs of an individual student, driving outstanding results



A more effective tutoring format than class format for teenage students



Specially suitable for mass average students to prepare for demanding admission exams in China



90%+ high school admission rates vs. approx. 50% of country average

Highly efficient operating system underpinned by robust KPI based incentive structure throughout the organization



Our KPI based incentive structure is proportionally tied to revenue and net profit at all levels, which helps control, actually almost fix our cost and

• perating expenses at a reasonable ratio of revenues



GPM at approx. 50% level, comparable to major class format players



Opex % of Revenue below 40%, lower than major class format players

Highly standardized learning center management system



Standardized organizational and incentive structure that can be easily replicated: 1) teaching & quality control, 2) customer services, 3) sales & marketing, and 4) recruiting & training



Standard operating procedure, training system, and data reporting



Deliberate succession plan and career development programs

Distinguished Core Competencies: Extremely High Entry Barrier

Premium Price Lean Cost Structure Replicable System Scalable Profitability in the Growing 1-on-1Tutoring Market

 OneSmart is the

clear market leader in premium1-on-1 tutoring space

5

The Three Step Growth Plan: Initial Step of National Coverage Completed

1.

Reach National Coverage and Scale

2.

Ramp up Newly Opened Centers

3.

Optimize Profitability The Three Step Growth Plan

OneSmart Learning Center Numbers

Non-GAAP Op Margin(1): 19.1% 16.0% 13.1% 12.7%

Controlled Expansion Stage  Margin optimized Rapid Expansion Stage  Margin temporarily pressured

National Coverage and Scale FY19Q3

430 Study Centers 43 Cities in China

FY15

117 Study Centers 14 Cities in China

117 150 195 315 430 FY15 FY16 FY17 FY18 FY19 Q3

5.8% 29% CAGR 48% CAGR

Notes 1.Excluding share based compensation expenses

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Solid and Proven Ramp-up Record of Centers Nationwide

1.

Reach National Coverage and Scale

2.

Ramp up Newly Opened Centers

3.

Optimize Profitability The Three Step Growth Plan

Shanghai Only OneSmart VIP Learning Centers Actual Performance

Year 1 Margin For Centers Operating >1 Year (<2) Year 2 Margin For Centers Operating >2 Years (<3) Year 3 Margin For Centers Operating > 3 Years

Gross Margin(2) 47% 63% 61% Op Margin(1) (2) (26%) 30% 31%

 Including all OneSmart VIP learning centers opened during FY16-FY18 in Shanghai  Op Margin (1) breaks even at Q3 of Year 1 on average

Top 10 Cities Outside Shanghai OneSmart VIP Learning Centers Actual Performance

Year 1 Margin For Centers Operating >1 Year (<2) Year 2 Margin For Centers Operating >2 Years (<3) Year 3 Margin For Centers Operating > 3 Years

Gross Margin(2) 45% 49% 57% Op Margin(1) (2) (20%) 3% 20%

 Including all OneSmart VIP learning centers opened during FY16-FY18 in top 10

cities outside Shanghai

 Op Margin (1) breaks even at Q4 of Year 1 on average

 Total 11 cities generated 92% revenue of

OneSmart VIP business, which was 84%

• f total company revenue in FY18;

 For centers opened in FY2015 or earlier,

Op Margin(1) during FY18 are:

－ 42% for those in Shanghai; － 28% for those in top 10 cities outside

Shanghai

Notes

• 1. Excluding regional and headquarters’ overhead and share based compensation expenses;
• 2. Margin figures for the three center baskets:
• For those centers have been operating for over 1 year but less than 2 years, we are showing here their margin numbers for their performance during the first year of operations to ensure sufficient data points; similarly, for those

have been operating for over 2 years but less than 3 years we are showing their performance from 13th-24th month of operations; and those more than 3 years we are showing numbers from 25th-36th month;

• The margin figures are aggregates of those centers generated during their own one year window. The one year window may not necessarily be the exact same year for individual centers. For example, margin figure for “Centers

Operating >2 Years (<3)”, is the sum of margins generated by centers with total operation tenors between 2 and 3 years during their own correspondent year 2 of operations

Historical Ramp-up Record

7

Management Model Output for FY20-FY22

Three Year Management Planning Model Output FY20-FY22 FY20 FY21 FY22 Revenue YOY Growth % 30 – 35% 35 – 45% 35 – 45% Non-GAAP Op Margin(1) 11 – 13% 13 – 15% 14 – 16%

Notes 1.Excluding share based compensation expenses

Please note that below is an output of management planning model, which is based on a key assumption of applying historical center ramp-up economics to newly opened centers. It is NOT a company guidance for future financial performance as situations may change.

1.

Reach National Coverage and Scale

2.

Ramp up Newly Opened Centers

3.

Optimize Profitability The Three Step Growth Plan

Capacity Expansion Assumed: % of Numbers of New Centers 15 – 20% 20 – 30% 20 – 30%

8

Strategy Going Forward: a Clear and Focused Plan for the Next Three Years

Focus on the Three Core Services Lines and Key Regions

－ Three core services lines: OneSmart VIP, HappyMath and FasTrack English － Accelerate scale-up of top 20 cities to achieve faster growth and margin expansion － Selective acquisitions with a focus on supporting the three core services lines

Balanced Capacity Expansion

－ Controlled 15-20% opening rate for new centers in the new fiscal year － Increased focus on the ramp-up of newly opened centers － Balance top-line growth and margin stability

Operational Enhancement

－ Strengthen core competencies as a premium services provider － Revamp incentive system to further improve productivity － Drive continued product and services innovation through new technologies 1 2 3

Section 2

Financial Highlights

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Key Financial Highlights for Third Fiscal Quarter of FY2019

 Monthly average student enrollments increased by 40% YoY  Total center number reached 430, with 29 openings during Q3

• 1. Growth

 One-off regulatory impact on top-line growth, expecting to normalize

in the next few months

• 2. Revenue

 Temporary margin pressure due to expansion is near bottom,

expecting non-GAAP Op Margin to enter expansion stage in FY20

• 3. Margin

 Accelerating top-line growth and continuous margin expansion

expected in the next three years

• 4. Outlook

Key Financial Highlights

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91 129 242 352 FQ3 2018 FQ3 2019 9M 2018 9M 2019 705 887 1,639 2,120 FQ3 2018FQ3 2019 9M 2018 9M 2019

HappyMath

1,529 2,058 2,863

FY2016 FY2017 FY2018

Net Revenues(1) OneSmart VIP

RMB MM

Notes

• 1. Net of value-added taxes

RMB MM +78.6% RMB MM +41.9% Growth +30.6% CAGR CAGR 824 1,093 1,929 2,683 FQ3 2018 FQ3 2019 9M 2018 9M 2019 +32.6% Growth 113 212 359 FY2016 FY2017 FY2018 +36.8% CAGR +25.9% Growth

Strong Top-line Growth Momentum in All Business Segments

FasTrack English

1,416 1,840 2,416 FY2016 FY2017 FY2018 73 FY2016 FY2017 FY2018 RMB MM 26 46 37 117 FQ3 2018 FQ3 2019 9M 2018 9M 2019 +39.1% Growth +29.3% Growth +45.6% Growth +77.5% Growth +216.1% Growth Fiscal years ended August 31 and third quarters ended May 31

12

123 157 225 220 284 27 38 66 60 93

24 22 42 11

FY2016 FY2017 FY2018 FQ3 2018 FQ3 2019

7,486 8,711 11,744 10,840 13,560

FY2016 FY2017 FY2018 FQ3 2018 FQ3 2019

Solid Operating Metrics

+41.5% CAGR

Average Monthly Enrollments Consumed Class Units Number of Classrooms

+25.3% CAGR

Number of Study Centers

+44.9% CAGR

150 195 315

+40.0% Growth

7,618 9,611 12,834 936 1,601 2,680 433

FY2016 FY2017 FY2018 11,212 8,554 +34.0% Growth 15,497

430

+42.4% Growth +25.1% Growth

OneSmart VIP Happy Math FasTrack English Others

302

OneSmart VIP Happy Math FasTrack English Others

+45.4% Growth +41.9% Growth +34.6% CARG 14,450

3,425 4,111 8,223 10,215 627 830 1,711 2,327 355 251 938

342

970

FQ3 2018 FQ3 2019 9M 2018 9M 2019

6,497 154

4,206 5,638 10,185 (in thousand)

56,019 76,841 112,145 124,892 174,835 108,858 158,282

FY2016 FY2017 FY2018 FQ3 2018 FQ3 2019 9M 2018 9M 2019

13

396 469 832 1039 51 57 136 180 17 12 36 10 8 23

FQ3 2018 FQ3 2019 9M 2018 9M 2019

Gross Profit and Gross Margin(1)

Stable Gross Margin

RMB MM

52.2% 51.3%

735 935 1,224 63 126 203 26

FY2016 FY2017 FY2018 55.3% 47.6% FY 2016 FY 2017 FY 2018 FQ3 2018 FQ3 2019 9M 2018 9M 2019 OneSmart VIP 51.9% 50.8% 50.6% 56.2% 52.9% 50.8% 49.0% HappyMath 56.3% 59.6% 56.5% 56.0% 44.0% 56.1% 51.1% FasTrack English NA NA 35.5% 38.3% 36.3% 32.9% 30.5% Others NA (101.3%) (20.9%) (1.8%) 26.6% (28.8%) 24.6% Overall Gross Margin 52.2% 51.3% 50.6% 55.3% 50.4% 50.7% 47.6%

Gross Margin by Segments

50.6% OneSmart VIP Happy Math FasTrack English Others 50.4% 50.7%

Notes

• 1. Fiscal years ended August 31 and third fiscal quarters ended May 31

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28.2% 30.5% 29.9% 30.5% 9.0% 10.9% 10.3% 12.1% 3.1% 3.5% 3.3% 4.0% 4.4% 4.7% 5.9% 5.8% FQ3 2018 FQ3 2019 9M 2018 9M 2019 31.7% 30.8% 30.5% 8.4% 9.0% 9.9% 2.9% 2.6% 3.0% 4.8% 6.3% 6.0% FY2016 FY2017 FY2018

Controlled Cost Structure

47.8% 48.7% 49.4% 44.7%

Staff costs Rental costs Depreciation and amortization Other costs

49.3% 49.6% 52.4%

Total Cost % of Net Revenue:

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Non-GAAP Selling & Marketing Expenses as % of Revenues(1) Non-GAAP General & Administrative Expenses as % of Revenues(1)

Efficient Operation Leads to Moderate Expenses

16.1% 17.4% 16.9% 17.0% 17.9% 20.6% 15.8% RMB MM RMB MM 261 368 588 FY2016 FY2017 FY2018

159 198 395 556

FQ3 2018 FQ3 2019 9M 20189M 2019 247 357 485 FY2016 FY2017 FY2018 130 214 344 FQ3 2018 FQ3 2019 9M 2018 9M 2019 19.3% 18.2% 19.6%

Notes 1.Excluding share based compensation expenses

20.5% 20.7% 17.8% 19.5%

524

16

167 139 238 198 FQ3 2018 FQ3 2019 9M 2018 9M 2019 291 330 376 FY2016 FY2017 FY2018 234 305 229 FY2016 FY2017 FY2018 57 123 118 152 FQ3 2018 FQ3 2019 9M 2018 9M 2019

Operating Margin: Stabilized and Soon to Expand

Operating Income and Operating Margin Non-GAAP operating Income and Operating Margin (2) Net Income and Net Income Margin (1) Non-GAAP Net Income and Net Income Margin (1) (2)

RMB MM RMB MM RMB MM RMB MM

Notes

• 1. Net income attributable to OneSmart
• 2. Excluding share based compensation expenses

19.1% 16.0% 13.1% 15.3% 189 259 246 FY2016 FY2017 FY2017 14.8% 8.0% 12.4% 12.6% 8.6% 7.1% 247 284 392 FY2016 FY2017 FY2018 16.1% 13.8% 13.7% 20.4% 7.6% 58 109 163 158 FQ3 2018 FQ3 2019 9M 2018 9M 2019 169 125 283 204 FQ3 2018 FQ3 2019 9M 2018 9M 2019 10.0% 8.5% 5.9% 11.4% 14.7% 6.9% 11.3% 6.1% 5.7% 20.2% 7.4% 12.3% 12.7%



If excluded financial impact of new centers opened in last 12 months (FY18Q3- FY19Q2), non-GAAP Operating Margin would have been 17.6% for FY19Q3

17

84 173 255 FY2016 FY2017 FY2018

Robust Cash Flows and Healthy Balance Sheet with Low Capex Requirements

Operating Cash Flows Capex and Capex as a % of net revenues Prepayments from Customers Cash and Cash Equivalents and Short-term Investments

RMB MM RMB MM RMB MM RMB MM 5.5% 8.4% 8.9% 7.6% 614 773 945 FY2016 FY2017 FY2018 323 417 659 176 FQ3 2018FQ3 2019 9M 2018 9M 2019 63 37 177 208 FQ3 2018 FQ3 2019 9M 2018 9M 2019 1,053 1,531 1,992 2,217 FY2016 FY2017 FY2018 FQ3 2019 1,010 1,396 2,227 2,010 FY2016 FY2017 FY2018 FQ3 2019 9.2% 3.4% 7.7%

Thank You