The Second Fiscal Quarter of Fiscal Year 2020 results:
Cash sales Increased by 20.5% Year-over-Year
Net Revenues Decreased by 6.0% Year-over-Year
Average Monthly Student Enrollments Increased by 8.3% Year-over-Year
First Half of Fiscal Year 2020 results:
Cash sales Increased by 30.7% Year-over-Year
Net Revenues Increased by 5.9% Year-over-Year
Average Monthly Student Enrollments Increased by 10.6% Year-over-Year
SHANGHAI, May 19, 2020 /PRNewswire/ — OneSmart International Education Group Limited (NYSE: ONE) (“OneSmart” or the “Company”), the leading premium K-12 education company in China, today announced its unaudited financial results for the second fiscal quarter ended February 29, 2020.
Highlights for the Secord Fiscal Quarter Ended February 29, 2020
- Cash sales increased by 20.5% year-over-year to RMB784.9 million (USD112.3 million)
- Cash sales from OneSmart VIP business increased by 19.3% year-over-year to RMB615.9 million (USD88.1 million)
- Cash sales from HappyMath business increased by 44.5% year-over-year to RMB75.6 million (USD10.8 million)
- Cash sales from FasTrack English business increased by 37.9% year-over-year to RMB56.0 million (USD8.0 million)
- Net revenues decreased by 6.0% year-over-year to RMB885.8 million (USD126.7 million)
- Net revenues from OneSmart VIP business decreased by 8.4% year-over-year to RMB684.6 million (USD97.9 million)
- Net revenues from HappyMath business decreased by 0.6% year-over-year to RMB116.7 million (USD16.7 million)
- Net revenues from FasTrack English business increased by 30.2% year-over-year to RMB51.3 million (USD7.3 million)
- Average monthly student enrollments increased by 8.3% Year-over-year:
- Average monthly student enrollments for OneSmart VIP business increased by 8.2% year-over-year
- Average monthly student enrollments for HappyMath business increased by 5.8% year-over-year
- Average monthly student enrollments for FasTrack English business increased by 34.8% year-over-year
Mr. Steve Zhang, Chairman and Chief Executive Officer of OneSmart, commented, “What we have achieved in the most challenging business environment in modern history demonstrates the adaptability and resilience of OneSmart’s business model and employees. Our years’ investments and technology development in the online space enables us to respond promptly to the unprecedented COVID-19 situation. Our online platform has been serving over 160,000 student enrollments as of February 2020, a massive increase from just a few thousands in late 2019. The speed and volume proves the Company’s strong ability to strategically manage and operate a premium online business and demonstrates its determination to build OneSmart Online into the largest premium online education business in China. While we expect our financial performance to be temporarily impacted for a couple of quarters by the pandemic, we believe it will bounce back fairly quickly as the schools reopen and the demand for premium education services prevails. Going forward, we will benefit from OneSmart Online to penetrate the mid-high end K-12 education market in China, in both scalability and profitability, as it is helping us expand in a much larger addressable market. We see enormous growth potential ahead and will take advantage of opportunities that arise as the industry consolidates after the pandemic. ”
The following are key highlights of business development during the second fiscal quarter of 2020:
OneSmart VIP Business (the leading premium K-12 1-on-1 education business in China)
- All of the offline learning centers were temporally closed since January 2020 following government’s measures against COVID-19
- Successfully migrated majority of our VIP students to the online platform during the first half of February 2020. Revenues generated in the online platform during Q2 reached the level of the same period last year. The massive online classes were handled successfully while maintaining a high customer satisfaction rate of over 90% and historically low refund rate of 3% in February 2020
- Upgraded our premium products including smart assessment and academic planning, smart homework system, live broadcasting classroom, etc.
- Net revenues of International Education program (premium 1-on-1 training services for students attending international schools) grew by 71% year-over-year
OneSmart Young Children Education Business: HappyMath (the leading premium young children math education business in China) and FasTrack English (the 2nd largest premium young children English education business in East China)
- All of the offline learning centers were temporally closed since January 2020 following government’s measures against COVID-19
- Successfully migrated over 80% of offline students to the online platform. Our online services has been well received by customers with customer satisfaction rate of over 90%
- Rolled out interactive curriculum 2.0 adopting Harvard Case Method for better learning experience
- Launched interactive online small group classes for children aging from 3-6. Meanwhile we started to provide children aging from 6-12 with full spectrum of subjects to help them with a smooth transition from kindergarten to primary school
- Strategically penetrated our HappyMath business into cities outside Shanghai where we observed a robust revenue growth in cities such as Chengdu, Suzhou, Nanjing, etc.
- Average monthly student enrollments of FasTrack English increased by 34.8% as we continue to strengthen our position in Yangtze River Delta Region
OneSmart Online (The leading premium online education business in China)
- Other than the 150,000+ student enrollments migrated to online platform as of February 2020, OneSmart Online has successfully acquired over 13,000 pure online and regularly priced enrollments as of early May 2020
- OneSmart Online, an OMO (online merging offline) model, has launched AI centers, which effectively reduces customer acquisition cost. The classes will be delivered online supported by triple teachers (cloud teacher, cloud study keeper and academic advisor) and artificial intelligence while value added offline activities including seminars, lectures, etc. are provided in the AI centers
- Continued to enhance OneSmart Online products and technologies including our latest online teaching platform Cloud Teaching System 6.0
- Successfully integrated the advanced technologies that we acquired from Yimi Online Tutoring. Yimi’s technology and development on big data analytics and artificial intelligence helped create synergies with OneSmart Online to drive interactive smart learning and further improve learning experience
Key Financial Results
(In thousands/RMB)
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2Q FY2020
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2Q FY2019
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% of change
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Net revenues
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885,800
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942,500
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-6.0%
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Gross profit
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356,428
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466,538
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-23.6%
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Operating income/(loss)
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(54,763)
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90,216
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NA
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Non-GAAP operating income/( loss)
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(18,054)
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102,350
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NA
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Net income/ (loss) attributable to OneSmart
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(16,367)
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64,924
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NA
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Non-GAAP net income attributable to OneSmart
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20,342
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77,058
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-73.6%
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|
|
|
|
|
|
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1H FY2020
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1H FY2019
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% of change
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Net revenues
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1,683,000
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1,589,477
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5.9%
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Gross profit
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637,069
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726,930
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-12.4%
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Operating income/ (loss)
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(169,461)
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29,147
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NA
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Non-GAAP operating income/(loss)
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(104,830)
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59,462
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NA
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Net income/(loss) attributable to OneSmart
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(106,300)
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48,617
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NA
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Non-GAAP net income/ (loss) attributable to OneSmart
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(41,669)
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78,932
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NA
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Mr. Greg Zuo, OneSmart’s Director, Chief Financial Officer and Chief Strategic Officer added, “Despite the impact by the outbreak of COVID-19, our strong execution enabled us to retain almost the same level of revenue compared with the same period last year. In addition, we booked RMB785 million cash sales in Q2, a 20.5% increase from the same period last year, a large portion of which was generated in our online platform. We also successfully reduced our cost structure and controlled expenses during the period through series of policy on labor cost, rent and operating expenses. We temporally put center expansion and upgrades on hold and will only resume the expansion after the crisis. The streamlined cost structure will benefit us in the longer term and we expect substantial margin expansion when topline growth return to normal level.
We recognized that the pandemic impact to our business is temporary and the duration of impact may vary between core VIP business and young children education businesses. VIP business may seem a swift drop in an environment when the public schools are closed and there is massive supply of free or low priced online classes. It is therefore temporally challenging for us to deliver the distinguished value of our premium education services when the score improvement demand is not as urgent when all of the students stay at home. We believe the demand will return in a fast fashion as schools reopen and exam schedule is now fixed. In the meantime, our young children education businesses may have a slightly longer period of impact as kindergartens and some primary schools will reopen a few months after other public schools, according to government policy.
The pandemic situation accelerates Company’s online expansion, a key strategy launched in FY2018. We are focused on the personalized 1-on-1 and small group online education services. Unlike online big-class format, those are the best formats to deliver high quality education services online by leveraging customized approach based on student aptitude. This is a key differentiator from online big-class format. The online education industry is massive and is rapidly growing in popularity since the COVID-19 outbreak began. The pursuit of learning effectiveness required by students and parents is driving the continuous penetration of premium personalized online education. Financially, we are committed to a healthy growth path for OneSmart Online by sticking to positive cash flow and avoiding burning cash for scale. We have tested and confirmed the attractive unit economics of OneSmart Online.
We are past the most difficult time as most of the provinces have announced back-to-school dates while our business operations are gradually getting back to normal. As of May 15, 2020, 54 of our VIP centers have reopened under government permission. We expect that number to increase over the next few months. We are confident that both of our online platform and offline operations will drive robust growth and profit going forward.”
Recent Development
Unveiling of Strengthened Corporate Value New “OneSmart Way” to Align with Its Online Ambition
The Company has unveiled its new “OneSmart New Way” which is the framework of its corporate mission, vision and value. The new “OneSmart Way” incorporates the Company’s strengthened commitment to upgrade into a prominent online education services provider. New “OneSmart Way” highlights the corporate value such as innovation, technology and customer satisfaction, to reinforce its leading position in the education sector by enhancing its premium services and executing its online strategy through OneSmart Online.
Completion of the Acquisition and Integration of Yimi’s Online Technologies
The Company has successfully completed the acquisition and integration of the online teaching technologies of Yimi Education Technology Inc. Yimi is a leading Chinese premium online 1-on-1 tutoring company. In its past five years of operation, Yimi’s technology has centered on big data analytics and artificial intelligence with a goal to drive interactive smart learning. Yimi also co-worked with OneSmart in 2019 to test and confirm the viability and profitability of the OMO business model. The acquisition of Yimi’s technologies added a key component to OneSmart’s premium online services and will help further improve the customer experience. Going forward, we will continue to focus our highly selective acquisition strategy centered on improving our core businesses.
Financial Results for the Second Fiscal Quarter Ended February 29, 2020
Net Revenues
Net revenues were RMB885.8 million (USD126.7 million), a decrease of 6.0% from RMB942.5 million during the same period last year. The decrease was mainly attributable to the temporary shutdown of our offline learning centers for COVID-19 related government requirements, offset by the incremental volume from online platform.
Operating Costs and Expenses
Operating costs and expenses for the quarter were RMB 940.6 million (USD134.5 million), an increase of 10.4% from RMB852.3 million during the same period last year. Non-GAAP operating costs and expenses, which excludes share-based compensation expenses, were RMB903.9 million (USD129.3 million), an increase of 7.6% from RMB840.2 million during the same period last year.
- Cost of revenues increased by 11.2% year-over-year to RMB529.4 million (USD75.7 million). We increased teacher compensation to attract higher quality teachers to support the development of OneSmart Online, added rental costs to comply with regulatory requirements;
- Selling and marketing expenses increased by 2.8% year-over-year to RMB196.7 million (USD28.1 million). Non-GAAP selling and marketing expenses, which excludes share-based compensation expenses, were RMB196.6 million (USD28.1 million), an increase of 2.7% from RMB191.4 million during the same period last year. The increase was a mixed result of increased spending in online channels and decreased expense ratio driven by disciplined marketing expense control during COVID-19 period and more effective sales and marketing activities to support the growth of OneSmart Online;
- General and administrative expenses increased by 16.0% year-over-year to RMB214.5 million (USD30.7 million). Non-GAAP general and administrative expenses, which excludes share-based compensation, were RMB177.9 million (USD25.4 million), an increase of 2.9% from RMB172.8 million during the same period last year. The increase was primarily due to increased R&D expenses for OneSmart Online mixed with our expense control policy to keep a healthy financial condition during COVD-19.
Total share-based compensation expenses, which were allocated to related operating expenses, were RMB36.7 million (USD5.3 million) in the second fiscal quarter of 2020, compared with RMB12.1 million in the same period of the prior fiscal year.
Operating Income/Loss and Operating Margin
Operating loss for the quarter was RMB54.8 million (USD7.8 million), compared with operating income of RMB90.2 million in the same period of the prior fiscal year. Non-GAAP operating loss, which excludes shared-based compensation, was RMB18.1 million (USD2.6 million), compared with Non-GAAP operating income of RMB102.4 million during the same period of the prior fiscal year.
Operating margin for the quarter was -6.2%, compared with 9.6% in the same period of the prior fiscal year. Non-GAAP operating margin was -2.0%, compared with 10.9% during the same period last year. The decrease of margin was mainly due to one-off revenue drop due to the impact of COVID-19, coupled with cost increase on teacher and rent and increased R&D expenses to support the online development. We expect margin will return to normal level post the crisis and start to expand in FY21.
Other income was RMB48.9 million (USD7.0 million), which mainly consists government subsidies and gains from investment revaluation, compared with RMB2.2 million during the same period last year.
Income tax benefit was RMB21.2 million (USD3.0 million), compared with income tax expense of RMB27.8 million during the same period last year.
Net Income/Loss Attributable to OneSmart
Net loss attributable to OneSmart was RMB16.4 million (USD2.3 million), compared with net income of RMB64.9 million during the same period last year. Non-GAAP net income attributable to OneSmart was RMB20.3 million (USD2.9 million), compared with net income of RMB77.1 million during the same period last year. The change was mainly due to the rise of teacher compensation, rent, R&D expenses, and interest expenses.
Capital Expenditures
Capital expenditures for the second fiscal quarter of 2020 were RMB67.9 million (USD9.7 million), a decrease of RMB23.0 million from RMB90.9 million in the second fiscal quarter of 2019. The decrease was mainly because we prudently managed our cash flow and temporarily suspended leasehold improvements due to COVID-19.
Financial Position
As of February 29, 2020, the Company had cash and cash equivalents of RMB1,107.2 million (USD158.4 million) and short-term investments of RMB384.4 million (USD55.0 million).
OneSmart’s prepayments from customers balance, which represents cash collected from enrolled students for courses and recognized proportionately as the training sessions are delivered, was RMB2,385.6 million (USD341.3 million) at the end of the second fiscal quarter of 2020, an increase of 21.1% from RMB1,969.5 million at the end of the second fiscal quarter of 2019.
Cash Flow
Net cash used in operating activities in the second fiscal quarter of 2020 was RMB6.7 million (USD1.0 million).
Net cash used in investing activities in the second quarter of 2020 was RMB222.0 million (USD31.8 million).
Net cash provided by financing activities in the second quarter of 2020 was RMB146.8 million (USD21.0 million).
Financial Results For the Six Months Ended February 28, 2019
For the first six months of fiscal year 2020, OneSmart reported net revenues of RMB1,683.0 million (USD240.8 million), representing a 5.9% increase year-over-year.
Average student enrollments in the first six months of fiscal year 2020 increased by 10.6% to approximately 165,125.
Operating costs and expenses for the first six months of fiscal year 2020 were RMB1,852.5 million (USD265.0 million), a 18.7% increase year-over-year. Non-GAAP operating costs and expenses for the first six months of fiscal year 2020, which excluded share-based compensation expenses, were RMB1,787.8 million (USD255.7 million), representing a 16.9% increase year-over-year.
Cost of revenues increased by 21.3% year-over-year to RMB1,045.9 million (USD149.6 million).
Selling and marketing expenses increased by 9.4% year-over-year to RMB391.6 million (USD56.0 million). Non-GAAP selling and marketing expenses, which excludes share-based compensation expenses, were RMB391.3 million (USD56.0 million), an increase of 9.5% from RMB357.4 million during the same period last year.
General and administrative expenses increased by 22.1% year-over-year to RMB414.9 million (USD59.4 million). Non-GAAP general and administrative expenses, which excludes share-based compensation, were RMB350.6 million (USD50.1 million), an increase of 13.0% from RMB310.1 million during the same period last year.
Operating loss for the first six months of fiscal year 2020 was RMB169.5 million (USD24.2 million). Non-GAAP operating loss for the first six months of fiscal year 2020 was RMB104.8 million (USD15.0 million).
Operating margin for the first six months of fiscal year 2020 was -10.1%, compared to 1.8% for the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses for the first six months of fiscal year 2019, was -6.2%, compared to 3.7% for the same period of the prior fiscal year.
Net loss attributable to OneSmart for the first six months of fiscal year 2020 was RMB106.3 million (USD15.2 million). Non-GAAP net loss attributable to OneSmart for the first six months of fiscal year 2020 was RMB41.7 million (USD6.0 million).
Outlook for Fiscal Year 2020
Based on the latest information, we expect to generate net revenues of RMB3,200.0 to RMB3,600.0 million (USD457.8 to USD515.0 million) for the full Fiscal Year 2020. However, this outlook represents OneSmart’s current view, which is subject to change because the COVID-19 impact is still ongoing and the reopen schedule of majorities of our learnings centers is not yet fixed, and the degree of full year contribution by our rapidly growing online products requires more data to assess.
Exchange Rate Information
This announcement contains translations of certain RMB amounts into U.S. dollars at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at the noon buying rate on February 29, 2020, as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System, which was RMB6.9906 to USD1.00.