onesmart company introductioncompany... · 2020-01-15 · china k12 ast market size (2018 –2022f)...

January 2020

OneSmart Company Introduction

Section 1

Company Overview

3

We are a Leading Premium K-12 After-school Education Services

Provider in China

Notes1. In terms of revenue in 2016 and 2017, according to Frost & Sullivan2. For students from kindergarten to the third grade in Shanghai in terms of revenue in 2016 and 2017, according to Frost & Sullivan 3. As of August 31, 20194. In terms of revenue in 2017, according to Frost & Sullivan5. A student enrollment is defined as a student who takes at least one class in one subject during a certain period. Under this definition, a student taking at least one class in each of two subjects

during a certain period is treated as two student enrollments for the period. The number of students enrolled in our invested K-12 schools and OneSmart Online is not included for this purpose6. For the fourth fiscal quarter ended August 31, 20197. Fiscal year ended August 31

Well-recognized brand with 432

study centers covering nearly 40cities in China(3)

Dominant market share of 26%(4) in

Shanghai’s premium K-12 after-

school education market

~160,000 average monthly student

enrollments(5)(6)

#1 premium K-12 after-school tutoring

service provider in China(1)

#1 young children mathematics education


Founded in Shanghai in 2008

~7,500full-time teachers(3)

RMB 4.0Bnrevenue in FY2019(7) , nearly doubled

from RMB 2.1bn in FY2017,

39.3% 3-year CAGR

Bring out the utmost learning power in each student by cultivating his or her study

motivation, capability and perseverance, and enable our students to pursue life-long success

Our MissionBuild the most trusted

‘‘Third Classroom’’ outside of home and school

Our VisionCustomer Focus

ExecutionInnovationTeamwork

Our Values

4

OneSmart VIP

1-on-1, 1-on-3 3rd–12th Grade

HappyMath

1-on-8/10 1-on-8/10

Kids Math

Note:1. In terms of revenue in 2016 and 2017, according to Frost & Sullivan

Also covers Chinese

We Focused on the Three Premium Education Services

Kids English

FasTrack English

#1 premium K-12 after-school tutoring


3 to 8 Yrs Old 3 to 8 Yrs Old

Focus on STEM English

Premium K-12 1on1 Education Services

Premium Young Children Education Services

The largest and most high-end player in China’s education market

Primarily focused on premium 1-on-1 format:

－ Personalized and highly effective, leading to outstanding study

results

－ More suitable than mass class-format tutoring to achieve score

improvements to pass entrance exams

Estimated student base: 45% middle schools, 35% primary schools

and 20% high schools

Also offers a 1-on-3 formats but only takes ~15% of revenues

Increasing demand by new generation of sophisticated 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

HappyMath was launched in 2013 and FasTrack English was

acquired in January 2018

Offered primarily in 1on8/10 group classes, suitable to kids education

5

Premium Market

Mid to high-end market

Mass market

Our Differentiated Position in China’s Education Services Market

Highest hourly tuition fee

rate in the industry

No.1

Most recognized premium brand

Outstanding learning

results

Note:1. Premium tutoring services 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

(1)

NYSE: ONE

NYSE: TAL

NYSE: EDU

6

Premium Market Grows Much Faster than the Entire Sector

169(30%)146

(28%)109

(25%)

349(74%)

475

324(75%)

373(72%)

2018

126(26%)

2019 2020

395(70%)

2021

196(32%)

416(68%)

2022

Premium CAGR +16%

Non-premiumCAGR +6%

433

518

564

611CAGR+9%

Premium after-school tutoring sector grows much faster than the entire market

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

China K12 AST Market Size (2018 – 2022F)RMB billions

Rising awareness and preferences

for individualized learning

Consumption upgrade by increasing

number of Mid-Class families

Rising willingness to pay for

premium services

Most recognized premium tutoring brands

By 2017 revenue

Xueda 1.1%

EDU1.5%

6.1%

Others93.9%

TAL 0.5%

OneSmart2.4%

Only 0.9%

28%

11%

11%

7%

4%

4%

3%

2%

2%

2%

Xueda

BestStudy

EDU

OneSmart

Longwen

TAL

Jinghan

Juren

Only

Xspark

OneSmart leads the market shares of the premium sector … still plenty of room to grow

A RMB 200bn

premium market

OneSmart only

takes 2.4%

share today

7

Our Distinguished Premium Services are Built on Three Key

Pillars: Quality, Services and Innovation

Note:1. Based on Class of 2019 results

1

Our highly personalized learning programs based on

students’ academic levels and learning habits provides the

most effective way to improve scores during a limited

timeframe, a much needed help for our students to prepare

for the highly selective entrance exams in China

2

Our 1-on-1 services and learning center environment enable

us to better provide personal level caring and more engaged

study experience to our students, a support that much

appreciated by increasingly sophisticated parents

3

We continuously pursue / upgrade new products and

technologies to enhance the learning experience and

effectiveness. We developed robust teaching system UPC (

Unique Personalized Coach), OMO (online-merge-offline)

tools and platforms, AI-powered OneSmart Online, etc.

Teaching Quality

Touching Services

Innovative Technologies

40% China avg.

93% vs.University

Admission

Rate(1)

94% vs. 45-55% China major city avg.

High School

Admission

Rate(1)

8

1

3

2

Superior customer experience supported by personalized

premium1-on-1programs that cater to the needs of an

individual student, driving outstanding results

Premium services and learning environment

A highly effective tutoring format

94% high school admission rates vs. 45-55% of major cities average

Highly efficient operating system underpinned by robust KPI

based incentive structure throughout the organization

Started small, learning centers’ cost and expenses incur almost at linear proportions to revenue growth due to the nature of 1on1 operations

Central planning and annual budget control at center level

Gross margin at ~50% level and Opex % of revenues at ~40% level, bothcomparable to major class format players

Highly standardized learning center management system

Standardized organizational and incentive structure that can be easily replicated

Standard operating procedure, training and data reporting systems

Deliberate succession plan and career development programs

Our Achievement of Scalable Profitability is Driven by Three

Core Advantages in our Business Model

Premium

Price

Lean

Cost

Structure

Replicable

System

Scalable

Profitability

in the Growing

1-on-1 Tutoring

Market

OneSmart is the

clear market leader

in premium1-on-1

tutoring space

9

OneSmart Offers a Comprehensive Tutoring Experience

Starting from its Pre-class Aptitude Test

PLI Analysis

CustomizedTeachingMethods

Well-trainedTeachers

DesignedClassroom

Integrated Offline-to-Online

Services

a

a

OneSmartOnline

Illustration of PLI Assessment Process

Based on test results, Student A’s profile

is created, taking into consideration his /

her strengths and weaknesses

Utilize assessment results to produce

tailored tutoring schedules

Assessment questions designed to

evaluate analytical ability and behavioral

patterns

Student A takes PLI assessment

A+ Student A receives personalized

learning materials and study plan

PLI Report Samples

The “Power Learning” education philosophy aims to spark our students’ intellectual curiosity, improve

their study habits, foster their confidence and enhance their learning capabilities

10

Personalized Learning Experience and Environment

with Well-trained Teachers

a

a

OneSmartOnline

DesignedClassroom

12

Million

Teaching

Notes

Group

Case

Study

Method

10

Million+

Test

Question

Scenario-

based

Multimedia

Teaching Content

Unique Study Rooms and Globally Recognized Classroom Designs

Carefully Selected and Well-trained Teachers

Personalized Teaching Materials and Customized Teaching Methodology

10- Level

Ranking

System to

Track Teachers’

Performance

Continuous on the Job

Training & Testing

OneSmart

University

OneSmart

Online College

<20%

Teacher

Applicant

Acceptant

Rate

PLI Analysis



Services


HappyMath Teaching Room

1-on-3 Teaching Room1-on-1 Teaching Room

Multi-functional Spaces

with Social Aspects

Interior, Architecture, Industrial

Design Award in 2017

11

DesignedClassroom

a

a

OneSmartApp

PLI Analysis



Services


OneSmart Online Strategies, based on Integrated Offline-to-Online

Services

Learning Center Systems

Back End Teaching and

Operations System Powers Front End Online and Offline Integrated Services

Offline

Learning

Centers

Online

Platforms

and OMO

Tools

12

Million

Teaching

Notes

10

Million

Test

Questions

UPC

Cloud-

based

Storage

Teaching

Bank

Data

Analytic

KPI

OneSmart Online

Online and offline integrated:

－ Cutting-edge technologies

－ Synergies with offline system and

operations

Convenience and enhanced services:

－ Mid-week 1on1 classes at home

－ On-demand supplementary courses

－ Enhanced communications

Teaching quality ensured:

－ Improved algorithms, powered by

data collected from offline

experience

－ Extensive 1on1 teaching experience

To establish OneSmart Online

as the largest online based

premium services platform

To enhance learning

experience and improve

customer satisfaction

To drive incremental growth for

both online and offline

businesses

To deliver profitable growth

Our Online Strategy

DesignedClassroom

a

a

OneSmartOnline


Services

Section 2

Strategy and Business Updates

13

Our Three Year Strategy: a Clear and Focused Plan

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 10-15% opening rate for new centers in FY2020, followed by slightly

more active expansion in FY2021 and beyond

－ 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, and

develop OneSmart Online into the largest online premium education platform

1

2

3

14

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% 7.5%

Controlled Expansion Stage

Margin optimized Rapid Expansion Stage

Margin temporarily pressured

National Coverage and Scale

FY19

432 Study Centers

~40 Cities in China

FY15

117 Study Centers

14 Cities in China

117 150 195315

432

FY15 FY16 FY17 FY18 FY19

5.8%

29% CAGR

49% CAGR

Notes1.Excluding share based compensation expenses

15

Solid Ramp-up Record of Centers Opened in the Past Three Years

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 MarginFor Centers Operating

>1 Year (<2)


>2 Years (<3)

Year 3 MarginFor Centers Operating > 3 Years

Gross Margin(2) 47% 61% 62%

Op Margin(1) (2) (27%) 23% 35%

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


>1 Year (<2)


>2 Years (<3)

Year 3 MarginFor Centers Operating > 3 Years

Gross Margin(2) 44% 51% 55%

Op Margin(1) (2) (20%) 7% 16%

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 90% revenue of

OneSmart VIP business, which was 79%

of total company revenue in FY19;

For centers opened in FY2015 or earlier,

Op Margin(1) during FY19 are:

－ 43% for those in Shanghai;

－ 27% for those in top 10 cities outside

Shanghai Notes1. 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 FY19 Q4)

Section 3

Financial Highlights FY19Q4 and

Full Year

17

Key Financial Highlights for Fourth Fiscal Quarter of FY2019

Average monthly student enrollments increased by 29.5% YoY

New student headcount increased by 60.2% YoY

Total center number reached 432

1. Growth

Topline growth has exceeded 40% YoY

Strong new enrollments growth supports visibility of future revenue growth

2. Revenue

Temporary margin pressure due to regulation, R&D spendings and expansion

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

3. Margin

Expect accelerating top-line growth and continuous margin expansion in the

next three years 4. Outlook

Key Financial Highlights

18

117 162

FQ4 2018 FQ4 2019

777 1,047

FQ4 2018 FQ4 2019

HappyMath

2,058

2,863

3,994

FY2017 FY2018 FY2019

Net Revenues(1) OneSmart VIP

RMB MM

Notes1. Net of value-added taxes

RMB MM

+55.7%RMB MM

+31.2%

CAGR

CAGR

934

1,311

FQ4 2018 FQ4 2019

212

359

FY2017 FY2018 FY2019

+39.3%

CAGR

Strong Top-line Growth Momentum in All Business Segments

FasTrack English

1,840 2,416

FY2017 FY2018 FY2019

73

192

FY2017 FY2018 FY2019

RMB MM

36 76

FQ4 2018 FQ4 2019

+40.4%

Growth

+34.8%

Growth

+38.0%

Growth

+109.9%

Growth

Fiscal years ended August 31 and fourth quarters ended August 31

3,168

514

19

157 225

275 38

66

9524

5111

FY2017 FY2018 FY2019

8,711

11,744

13,312

FY2017 FY2018 FY2019

Solid Operating Metrics

+43.6%

CAGR

Average Monthly Enrollments Consumed Class Units

Number of Classrooms

+23.6%

CAGR

Number of Study Centers

+48.8%

CAGR

195

315

9,611 12,384

15,466

1,601

2,680

3,639

1,466

FY2017 FY2018 FY2019

15,497

11,212

1,506

22,078

432

OneSmart VIP Happy Math FasTrack English Others


+29.5%

Growth+43.6%

Growth

+40.3%

CAGR

4,116

5,375

989

1,313 528536

FQ4 2018 FQ4 2019

6,497

207

5,312

7,752

(in thousand)

76,841

112,145

158,346

122,498

158,649

FY2017 FY2018 FY2019 FQ4 2018 FQ4 2019

433

185 180

219 226

135 139 134 141

FY2018 FY2019 FY2018 FY2019 FY2018 FY2019 FY2018 FY2019

ASPRMB per class unit

-2.6%

Decrease(1)

+3.2%

Growth

+5.4%

Growth

+4.1%

Growth

Note

1.The decrease is mainly due to 1) the consolidation of Tianjin Huaying whose primary business is class programs; 2) business mix changes

Total Happy MathVIP 1v3VIP 1v1

20

391

519

67

83

38

14

FQ4 2018 FQ4 2019

Gross Profit and Gross Margin(1)

Stable Gross Margin

RMB MM

48.1%51.3%

935

1,224

1,558

126

203

263

73

FY2017 FY2018 FY2019

26

50.6% 49.1%

FY

2017

FY

2018

FY

2019

FQ4

2018

FQ4

2019

OneSmart VIP 50.8% 50.6% 49.2% 50.3% 49.6%

HappyMath 59.6% 56.5% 51.1% 57.4% 51.1%

FasTrack

EnglishNA 35.5% 38.2% 38.0% 50.1%

Others (101.3%) (20.9%) 22.5% 5.4% 15.1%

Overall Gross

Margin51.3% 50.6% 48.1% 50.6% 49.1%

Gross Margin by Segments

50.6%


Notes

1. Fiscal years ended August 31 and fourth fiscal quarters ended August 31

FY19 GP Margin maintains at ~50% level if excludes Others.

21

32.0% 32.2%

9.2% 8.9%

2.3% 3.0%

5.9%6.7%

FQ4 2018 FQ4 2019

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

Controlled Cost Structure

51.9%48.7% 49.4%

Staff costs Rental costs

Depreciation and amortization Other costs

49.4% 50.9%Total Cost % of Net Revenue:

FY19 Cost % of Net Revenue increased 2.5 percentage points due to one-time hike on rents and

teachers’ cost to comply with the new regulation (relocations, larger new centers and teacher’s

licenses). Expect the impact will scale back after the one time adjustments and ASP increases

22

Non-GAAP Selling & Marketing Expenses as % of

Revenues(1)

Non-GAAP General & Administrative Expenses as

% of Revenues(1)

Efficient Operation Leads to Moderate Expenses

20.2%17.4% 16.9%20.4%17.9% 20.6%

RMB MM RMB MM

193

260

FQ4 2018 FQ4 2019

357

485

806

FY2017 FY2018 FY2019

141

282

FQ4 2018 FQ4 2019

Notes1.Excluding share based compensation expenses

20.7% 19.8% 15.1% 21.5%

368

588

816

FY2017 FY2018 FY2019

G&A expense ratio increase by 3.2 percentage points in FY19 was driven by:

1) R&D and related admin expenses incurred for both offline business and

newly launched online strategies in Q4 (additional RMB80mm one-time

spend … 2% of FY19 net revenue; 2) regulatory compliance to support

center opennings (est. 1.2% net revenue additional spendings)

23

138 102

FQ4 2018 FQ4 2019

330 376 300

FY2017 FY2018 FY2019

305

229 229

FY2017 FY2018 FY2019

111 76

FQ4 2018 FQ4 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

Notes1. Net income attributable to OneSmart2. Excluding share based comp expenses

7.5%16.0% 13.1%5.7%

259 246

206

FY2017 FY2018 FY2019

14.8% 8.0%

5.2%12.6% 8.6%

284

392

278

FY2017 FY2018 FY2019

7.0%13.8% 13.7% 5.6%

83

48

FQ4 2018 FQ4 2019

109

74

FQ4 2018 FQ4 2019

8.8% 3.7% 11.7%

11.9% 5.8% 7.8%14.8%

If excluded the financial impact of new centers opened in last 12

months (FY18Q4-FY19Q3), non-GAAP Operating Margin would have

been 11.4% for the FY19Q4 quarter

The 5.6 percentage points decreases on Non-GAAP Op margin FY19 vs. FY18, were mainly driven by

one-off causes: 1) Cost % Net Revenue up by 2.5ppoints due to regulatory requirements on center

locations and teachers (page 22): 2) G&A % Net Revenue up by 2.3ppoints due to one time R&D

spendings and new center opennings during the rapid expansion in FY19 (page 23)

24

Robust Cash Flows and Healthy Balance Sheet with Low

Capex Requirements

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

RMB MM RMB MM

1,531

1,992 2,162

FY2017 FY2018 FY2019

1,396

2,227

1,832

FY2017 FY2018 FY2019

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

331

FY2017 FY2018 FY2019

208 155

FQ4 2018 FQ4 2019

65 76

FQ4 2018 FQ4 2019

5.8%7.0%

The decrease of operating cash flow for FY19 was mainly due to the

slower growth of prepayments from customers, caused by the changes

of our tuition collection time period to comply with the new regulation

Thank You

onesmart company introductioncompany... · 2020-01-15 · china k12 ast market size (2018 –2022f)...

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