FY20 Q1 Results Presentation February 2020 Section 1 Business - - PowerPoint PPT Presentation

February 2020

OneSmart International Education Group Limited FY20 Q1 Results Presentation

Section 1

Business Updates

3

China afterschool tutoring (AST) market: tremendous potential exists in

• nline sector, with lower tier cities generating majority of growth

Note: Tier-1 includes 4 cities, Tier-2 includes 45 cities; Source: NBS, CEIC, Goldman Sachs Research

Online AST market is growing 4x faster than market average:

• 41% online AST enrollment penetration by 2025E

from 15% in 2019E, or 54mn K-12 online AST students

• May further increase driven by rising online adoption

under recent coronavirus situation

61% of online AST students to come from low- tier cities (Tier-3 and below), for a number of reasons:

• Lower tier cities takes 70% of total K-12 student

populations of China

• Lack of quality teachers in lower tier cities leads to

demand for online AST providing quality teachers

• Lower competition due to low penetration rate by offline

AST players

Online students distribution by city tier Rapid increase of online penetration rates

Student population

4

Premium Market Mass to high-end market

OneSmart online positioning: Focus on premium services to provide more effective learning experience and outcome

Note: Premium market refers to either 1-on-1classes priced at or above RMB 200 per session or small group classes priced at or above RMB 120 per session, according to Frost & Sullivan Source: Frost & Sullivan: China’s K-12 After-School Tutoring Market Study

NYSE: ONE NYSE: TAL NYSE: EDU

OneSmart Online

Online big class players Online recorded class players

Differentiated Segment Offline Business Online Business

• K-12 premium 1on1
• Small group young

children education

• Class format
• Lower price

 Premium sector grows much faster than

• verall market: 16% vs. 9% (2018-2022F

CAGR)

 Premium 1on1 provides most effective

learning: OneSmart high school admission rates 94% vs. 50% China average

 Target score improvement demand due to

entrance exam competition vs. regular advanced learning demand by big class player

 Effectiveness ensured by high

engagements, tailor-made programs and AI powered smart teaching

 Suitable for younger students vs.

• nline big classes suitable for self

driven older students

 OMO model integrated with offline

• perations, to ensure services quality

and manage customer acquisition cost Focused on premium online 1on1

5

Better Teacher Convenience

Customer Needs

Customer Demand Served by OneSmart Online

希望加频的同时 希望节约往返校区的时间 /

Customer Types

Existing Customer New Customer

More frequency while also save commute time: Weekday online courses Same city but long distance from OneSmart center: OMO model Better teacher For high school students* OMO model

* Online education suitable for high school students because:

1.

Lower tier city students demand for higher quality teachers often gathered in the largest cities of China such as Beijing and Shanghai

2.

College entrance exam is more standardized countrywide in China;

3.

Students more self driven thus more concentrated when doing online classes

OneSmart online products designed for incremental demand, helps expand into areas where offline centers cannot yet cover

• Convenient for students at long

distance to our centers or students prefer online education

• Choices for higher quality teachers

located in the largest cities of China

• 1. Weekday online classes
• 2. OneSmart OMO model

OneSmart Online

• Weekday online classes offered to

all existing offline students for convenience and higher frequency

• f study

6

City Tier Positioning Higher Lower Higher Tier 1 & 15 Largest Tier 2 Cities OneSmart Offline & Weekday Online Tier 3 Cities OneSmart Online OMO Tier 2 Cities OneSmart Offline & Online OMO

OneSmart Business Line / City Tier Matrix

Online offerings provide a much larger addressable market

OneSmart Offline Business

Note: Tier-1 includes 4 cities, Tier-2 includes 45 cities

• Upgrade to more premium Elite products to

drive incremental growth

• Growth strategy is to scale up the top 20 cites

to achieve city level operations efficiency and economy of scale

• Incremental growth and margin expansion

driven by ramp-up of the 237 centers opened in FY18 & FY19

Growth Strategy

OneSmart Online

• Expand our offerings to cover students

located far from our currently limited center network in tier 2 cities

• Possibility to enter tier 3 or even lower tier

cities where we have not entered yet

7

OneSmart OMO model: integrated with offline business and offers supplementary and compelling value proposition

Offline Center Online Platform Show-room Feedback & Services

Customer acquisition

Consultancy Student Assessment Teaching Customer Demand Products Economics

OneSmart Offline Model

Prefer effectiveness of onsite 1on1 tutoring 1on1 format and typically focused on one or two subjects Proven unit economics (Per Student OP Margin >25%) and margin expansion driven by new center ramp-up

OneSmart OMO Model

• 1. Time and convenience
• 2. No limitation on distance
• 3. Cover more lower tier cities
• 4. Choices of high quality teacher
• 1. Offerings of more subjects
• 2. 1on1 and group formats
• 3. Choices of shorter term

packages

• 1. Unit economics comparable to
• ffline model
• 2. Some discounts to offline pricing,
• ffset by rental savings,

efficiency & low acquisition cost

Supplementary to offline business to capture larger market demand

OneSmart APP

Offline and Online integrated

Teaching & Services

OneSmart OMO Model

8

OneSmart Product Map

Offline Businesses

OneSmart VIP HappyMath FasTrack English

OneSmart Online 1on1 for High School 1on1 Online classes for K-12 tutoring Online Small Group Class for Primary School & Kindergarten

OMO Model Weekday Online Classes

OneSmart product map: matched offline and online products across our three major business lines

Online small group classes for HappyMath students Online 1on1 or small group classes for FasTrack English students

OneSmart Online

OneSmart Online 1on1 for Middle School 1on1 K-12 tutoring Young Children Math Kids English

9

Our past investments in online sector helped faster development

• f OneSmart Online products and technologies

Strategic Investments in Online Education

2015 - 2019

 One of the leading premium and best

rated online 1on1 platforms based on customer rating and renewal

 100% full time teachers  OneSmart invested in 2015 and add-

• n investment in 2018

 Online kids English by native

speaking teachers

 OneSmart invested in 2016  Online young children math  OneSmart invested in 2017  Online kids books, teaching and tools  OneSmart invested in 2019



Yimi has industry leading AI algorism in developing online 1on1 tutoring programs, with 5 years’ dedicated innovation



OneSmart and Yimi co-tested its OMO model since Jan 2019 and validated unit economics Cooperation with Yimi Online Tutoring

Yimi Online Tutoring

OneSmart Online

2018 --

1 2 3

 Launched in early 2018  Weekday product offered

to existing offline students

 Interactive and AI powered

OneSmart Online’s OMO model

Weekday Online 1on1



Business model tested since the beginning

• f 2019



Rolled out to more than 10 cities currently

10

Offline operations update: Continue to achieve satisfactory ramp-up performance for newly opened centers

1.

Reach National Coverage and Scale … Accomplished

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) 45% 61% 62% Op Margin(1) (2) (31%) 24% 33%

 Including all OneSmart VIP learning centers opened during FY16Q2-FY19Q1 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) 43% 58% 56% Op Margin(1) (2) (18%) 22% 19%

 Including all OneSmart VIP learning centers opened during FY16Q2-FY19Q1 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 75%

• f total company revenue in FY20Q1;

 For centers opened in FY16Q1 or earlier,

Op Margin(1) during prior 12 months are:

－ 42% for those in Shanghai; － 27% 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 their margin numbers for performance during the first year of operations; similarly, for those 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

Historical Ramp-up Record (Updated to FY20 Q1)

Section 2

Financial Highlights

12

Key financial highlights for first fiscal quarter of FY20



New student headcount increased by 53.5% YoY



OneSmart Online is well-positioned to generate incremental growth

• 1. Growth



Topline growth has exceeded 23.2% YoY



Strong new students growth supports visibility of future revenue growth

• 2. Revenue
• 3. Margin



To revise full year guidance due to impact by coronavirus outbreak



OneSmart Online expected to drive strong incremental growth

• 4. Outlook

Key Financial Highlights



GPM and OPM margin impact mainly due to improvement of teacher quality and strategic R&D spendings to support our online and premium strategies



Margin expansion expected later in the fiscal year

13

106 114 FQ1 2019 FQ1 2020 486 601 FQ1 2019 FQ1 2020

HappyMath

2,058 2,863 3,994

FY2017 FY2018 FY2019

Net Revenues OneSmart VIP

RMB MM

Note

• 1. HpapyMath’s slower growth than previous quarters is mainly due to that we are reshuffling our student portfolio to adapt to regulatory change in Shanghai, new students growth

attracted by the new AI-Math program has been quickly catching up, thus we expect HappyMath’s revenue growth will gradually go back to previous level within a year or less

RMB MM +55.7% RMB MM +31.2% CAGR CAGR 647 797 FQ1 2019 FQ1 2020 212 359 FY2017 FY2018 FY2019 +39.3% CAGR

Top-line growth in the three business segments

FasTrack English

1,840 2,416 FY2017 FY2018 FY2019 73 192 FY2017 FY2018 FY2019 RMB MM 31 48 FQ1 2019 FQ1 2020 +23.2% Growth +23.8%

Growth

+7.1%(1)

Growth

+54.3% Growth Fiscal years ended August 31 and first quarters ended November 30,2019 3,168 514

14

2,501 2,97 5 726 826 262 376 238 348 FQ1 2019 FQ1 2020

8,711 11,744 13,312 12,385 13,051

FY2017 FY2018 FY2019 FQ1 2019 FQ1 2020

Operating Metrics

+43.6% CAGR

Average Monthly Enrollments Consumed Class Units Number of Classrooms

+23.6% CAGR

9,611 12,384 15,590 1,601 2,680 3,639 1,466

FY2017 FY2018 FY2019 15,497 11,212

1,506

22,202

OneSmart VIP Happy Math FasTrack English Others

OneSmart VIP Happy Math

FasTrack English

Others +13.1% Growth +21.4% Growth +40.7% CAGR (in thousand)

433

ASP

RMB per class unit

+1.5%

Growth +6.4% Growth +3.0% Growth

• 5.8%(1)

Growth

Note 1.The decrease of ASP of HappyMath is mainly due to 1) the fact that we entered into more cities outside Shanghai in which we adopted lower pricing policies; 2) launch of short term promotional classes as a new marketing campaign

Company Happy Math VIP 1v3 VIP 1v1 3,728 4,525 +5.4% Growth

174 176 216 229 133 137 147 138 120 129

FQ1 2019 FQ1 2020 FQ1 2019 FQ1 2020 FQ1 2019 FQ1 2020 FQ1 2019 FQ1 2020 FQ1 2019 FQ1 2020

58,964 71,656 97,497 16,194 22,618 33,023 8,128 14,224

FY2017 FY2018 FY2019 75,158 102,402 144,744 +38.8% CAGR

16,050 24,150

3,272 7,596 2,372 4,337

21,471 30,158 FQ1 2019 FQ1 2020

43,165 +53.5% Growth 66,241

New Students by Business Segment

63,295 85830 99,226 13,545 18,884 27,024 7,431 15,934

16,162

FY 2017 FY 2018 FY 2019

112,145 76,841

84,531 97,695 25,803 27,969 13,175 20,506

18,878 14,912

FQ1 2019 FQ1 2020

142,387 158,346 161,082 +7.7% Growth FasTrack English

15

195 224 56 40 7 10

FQ1 2019 FQ1 2020

Gross Profit and Gross Margin(1)

Gross margin

RMB MM

48.1% 51.3%

935 1,224 1,558 126 203 263 73

FY2017 FY2018 FY2019

26

40.2% 35.2% FY 2017 FY 2018 FY 2019 FQ1 2019 FQ1 2020 OneSmart VIP 50.8% 50.6% 49.2% 40.1% 37.3% HappyMath 59.6% 56.5% 51.1% 52.9% 35.3% FasTrack English NA 35.5% 38.2% 22.3% 20.3% Others (101.3%) (20.9%) 22.5% 9.7% 18.5% Overall Gross Margin 51.3% 50.6% 48.1% 40.2% 35.2%

Gross Margin by Segments

50.6% OneSmart VIP Happy Math FasTrack English

Notes

• 1. Fiscal years ended August 31 and first fiscal quarters ended November 30, 2019

 If

excludes the financial impact

• f

increased teacher compensation (impact 4.0 ppt) to attract higher quality teachers to support the development of OneSmart Online and enhanced premium products we recently launched, and added rental costs (impact 1.0 ppt) to upgrade the learning centers, Gross Margin would have been 40.2% for FY20 Q1

16

33.2% 37.1% 14.8% 15.8% 4.9% 5.5% 6.9% 6.4% FQ1 2019 FQ1 2020 30.8% 30.5% 31.1% 9.0% 9.9% 11.1% 2.6% 3.0% 3.6% 6.3% 5.9% 6.1% FY2017 FY2018 FY2019

Cost structure

51.9% 48.7% 49.4%

Staff costs Rental costs Depreciation and amortization Other costs

59.8% 64.8%

Total Cost % of Net Revenue:

17

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

Selling & marketing expenses, and G&A expenses

20.2% 17.4% 16.9% 20.4% 17.9% 20.6% RMB MM RMB MM

166 195

FQ1 2019 FQ1 2020 357 485 806 FY2017 FY2018 FY2019 137 173 FQ1 2019 FQ1 2020

Notes 1.Excluding share-based compensation expenses

25.7% 24.4% 21.2% 21.7% 368 588 816 FY2017 FY2018 FY2019

18

(43) (87) FQ1 2019 FQ1 2020 330 376 300 FY2017 FY2018 FY2019 305 229 229 FY2017 FY2018 FY2019 (61) (115) FQ1 2019 FQ1 2020

Operating margin

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

RMB MM

Notes

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

7.5% 16.0% 13.1% 5.7% 259 246 245 FY2017 FY2018 FY2019 14.8% 8.0% 6.1% 12.6% 8.6% 284 392 317 FY2017 FY2018 FY2019 7.9% 13.8% 13.7% (7.8)% (16) (90) FQ1 2019 FQ1 2020 2 (62) FQ1 2019 FQ1 2020 (2.5)% (11.3)% 0.3% (9.4)% (14.4)% (10.9)% (6.6)%

 If excludes the financial impact of increased teacher compensation

(impact 4.0ppt), higher rental cost (impact 1.0%) and R&D spending (impact 2.0ppt) to support online products development, non-GAAP Operating Margin would have been -3.9% for FY20Q1

19

Operating cash, Capex and cash balance

Prepayments from Customers Cash and Cash Equivalents and Short-term Investments

RMB MM RMB MM 1,531 1,992 2,171 2,219 2,426 FY2017 FY2018 FY2019 FQ1 2019 FQ1 2020 173 242 284 FY2017 FY2018 FY2019

Operating Cash Flows Capex and Capex as a % of net revenues

RMB MM 8.4% 8.5% 7.1% 773 867 345 FY2017 FY2018 FY2019 (123) 13 FQ1 2019 FQ1 2020 80 90 FQ1 2019 FQ1 2020 11.3% 12.4% 1,396 2,227 1,841 1,524 1,636 FY2017 FY2018 FY2019 FQ1 2019 FQ1 2020

Thank You