Q1 2020 Earnings Call

Thank you Rebecca. And thank you for your interest in today's presentation. We would like to extend sympathy to those affected by local laws and wireless situation, especially with the company has been taking active measures and the highest standard of a social responsibility is to help out and deeply impressed by our teams strong execution abilities under the calendar the constants will hi service quality and customer satisfaction play more importantly lower than before the situation require us to accelerate the expansion of our online Platform One Smart online the online platform was built deep understanding of online education demands and black box and the technology is slow and number of online businesses that were invested in over the last five years.

Once my online we're focused on providing premium personalized Education Services.

It's o m o offerings which way are loading out to more than 10 cities in China enables us to serve a much broader adjustable Market wage forward are offline centers will continue to focus on tier 1 and major tier-two cities why online platform we extend into the vast lower-tier cities. I am very confident that we saw where recognize the plans excellent the teacher quality operational efficiencies and the continuous investment in technology.

Way with quickly build up the largest the premium online education platform in China. Now, I will hand over the car to grab whoever give you more details page on the company's recent business and financial updates as well as walk you through our we're developing online strategy, please go ahead.

Thank you Stephen. Thank you all for joining us. Let me stop by sending our deep concern and care to people including our students and parents have been affected by the ongoing coronavirus situation in China. We would also send our sincere appreciation to our employees for their tremendous efforts and outstanding achievements made it during this particular time. You mean our update you on the active accent the company has taken against the outbreaks situation. The management was active in monitoring the situation during the January and was prepared by the time series government policy and asked the content the virus outbreak the management quickly taken series of solutions into action during the Chinese New Year holiday, we train our teachers and services stuff and prepare our technology system for the massive conversion of students to have all night performance as such our own assistant have been wage.

Greatest a body and didn't experience.

Any major disruptions within the first two weeks since the beginning of February when we launched the only commercial initiatives the company has successfully migrated the offline students and operations across the country to only as of February 15th, we had successfully converted more than 80% of our happiness in the fast track students approximately 60% of our plants my VIP business students online. The conversion was lower for VIP business as it takes time for our service staff to reach out and set up all my system for those wage last volume of business students.

Those kids had taken online classes more than twice as frequently as they took offline classes previously. Thanks to the stability and high quality of life causes supported by one small all night. We expect conversion rate to further increase the next few weeks.

That's for February 15th. We have approximately $100,000 enrollments taking classes online platform. This online courses will be taught by the office and regular teacher with the same curriculum support real-time interaction between teachers and students powered by AI technology to smartly adjust teaching content quick questions, as a result. The overall response rate has been well in line with the historical level in our current estimates. We expect to generate on the 250 to 300 million not revenues should all my platform with February month alone. It may further improve in future months when we have largest student migrate online and and learning off my graduates. We open

On the other hand to actively manage the short.

Financial impact, we have implemented temporary cost and expense control policies. We expect labor costs to decrease as a large part of the pay structure of our teachers service stuff is proportionally tied to their daily production. We benefit from favorable measures of rental reduction being promoted by rather than to local authorities and parties. We expect our DNA and marketing expense to reduce a fair amount as a lot of these activities are on hold due to the situation.

Looks looking forward it screws. We open in the coming weeks for Mondays of the virus situation is contained we expect the ketchup impact on the school closure. That may lead to an increase in consumption of our offline courses. Once our study center. We open the large majority of our we we IP students may take our courses to prepare for school exams a particular college and high school entrance exams, which take place in June ask you will have to prepare no matter the circumstances and they need to catch up on the study lounge during the closure of public schools. Additionally. We expect one smart to continue to generate strong incremental growth post-crisis through the online.

with that let me now turn to the

Ernie's presentations like that. We uploaded onto the website prior to this call.

Let me start on page 3 with a bit of Industry background here in online education center. You may have realized how tremendous potential the market has driven by the rapid application of my own education in China.

Only absolute Market is growing four times faster. The market average that is to say around 41% of a penetration by 2025 up from 15% in 2019 translating into 54 million of students the recent current virus outbreak situation may lead to a rising online adoption rate is Josh speaking of all my students distribution 61% of all, my after-school tutoring students in China are from lower-tier cities as student population in lower-tier City take about 70% of total K-12 students in China meanwhile lack of quality teachers in lower-tier cities leads to demand for all my after-school tutoring providing quality teachers and lower competition is largely due to the lower penetration rate by offline after school players.

Shows one smart position in premium Market to provide more effective learning experience and outcome for both online and offline for offline business premium sector grown much faster than overall Market premium one-on-one provide most effective learning. If you look at high school admission rate of 94% by students study at one smart versus 50% China average which means half of student couldn't go to high school in China this creates an enormous demand for school improvement improvement that can be addressed by once more. We believe our products and services are more suitable for those students compared with regular Advanced learning services that big class player of the box. Once more online also ensures the faction is by high engagements tailor-made programs and a I powered smart teaching.

Yes suitable for younger students who are all night. Big class are more suitable for all the students. Once more online Leverage is all were mortal integrated with all flight operations to ensure service quality and the manage customer acquisition cost.

Once my online products are designed based on all our understanding or customer demand. Please turn to page five. So we have identified three major tax incremental demand that our offline Centrist cannot yet cover but can be offered by of online platform. We provide convenience to our existing to students by offering weekday on life versus how about the same teacher and follow the same curriculum, they take from offline classes. They provide convenience to the students by Saving Time from community and then increase in frequency and producing equation to students lifetime values another scenario takes place in cities where we don't have sufficient coverage of off-licences yet. O m o model and approach new students in now authorized centers while the classes are delivered online.

Once my online also serve the needs of people looking for better teachers for high school as high a quality teacher or can gather in the larger cities such as Beijing and Shanghai.

Beside dog house more standardized Countrywide and those students are more self-driven that's more concentrated when doing online classes.

That says online offering provide a much larger address for Market is trying to page six for our growth strategy in different cities to tear Matrix consistent with our previously disclosed strategy. We will drive off like rose by upgrading to more premium products and for the scale of the top 20 cities to achieve economies of scale. We expect to continue to achieve incremental growth and margin expansion given by ramp-up of the 237 Center opened in the last two Financial years.

For Kia to cities that we have limited sent a network will rely on one's not online and it's O M of model to cover the fast growing demand until 3 or even lower-tier cities where our current online centres do not yet cover.

We would like to elaborate a bit more and more model on page seven one smart differentiates us from those pure online players as it provides supplementary, but compelling value propositions.

The offline business model we serve the needs of those who preferred affecting it through on-site one-on-one tutoring in one small o m o model we start the process by interactions demonstration of services, you know, local study center through those opportunities. We can not only effectively convert the sales but more importantly will be assessed as individual students wage. And in order to develop a more tailor-made catering program there is online platform to deliver classes our online platform provides convenience, and it's time saving notification intestines and provides choices high-quality students and teachers.

Susan get to select more subject and shorter-term packages and the class format can be 101 or include some discount will be applied to online pricing but will be offset by rental savings. If it's Chelsea and the log customer acquisition cost which may lead to a unique lummox comparable to apply model.

We roll out a series of all my products which are built from the the well-matched from three major business lights as shown on page eight indoor scratch off my wall exception brand. We provide weekday only platform programs to students of once my VIP happy mask and fast-track English students. In addition under the old one moment. Please provide online 101 courses to middle school and high school students as well as all my small group costs for Primary School and kindergarten students.

Let me move on to talk a little bit about on that product and Technologies.

I'll continue with the investment unless that would help us with faster development of all night platform our Strategic investment include my children and leaving premium unnatural in service provider which provides only English native speaker, which provides only young children math group classes and fish port or data, which Chrome icon my kids books teaching and tours. Once my online was first initiated in early February 2018 by monitoring in reachable. I haven't already provides live one-on-one broadcasting with the programs to existing of my students the o m o model was developed since early 2019 has brought out two thousand ten cities today after we previously

Catholic

It's successfully together. We are currently developing our second generation of algorithm public all my teaching system. The system will better help out all night one-on-one tutoring system to automatically detect the responses from students including the facial expressions pancakes to answer questions common areas of mistakes dispatch. Those information will be used to smarty updates future teaching materials and quick questions to create more effectiveness.

No time to pay tonight and review of ramp up data.

So the latest quarter fy20 the ramp up data continues to demonstrate satisfactory results both in Shanghai and competencies outside Shanghai, which once again proves a highly efficient operating system. Please leave the margin expansion Trent we show up in our financial later pop the fiscal year with the ramp-up of those young vintage Learning Center back in March on track.

I would like to provide an update on where we are. You sent the opening for FY twenty.

Now I would like to turn the call over to Rebecca whom you go through details of our financial results during the first fiscal quarter 2020, please go ahead and Rebecca.

Thank you. Let me provide key financial highlights then discuss the performance in our Core Business segments and lastly walk you through the key financials during the first fiscal quarter of 2025. Let me start with school and gross Market new student enrollment increased by over 53% year-over-year to provide visibility for future growth. This one smart online with Samsung Smart only well positioned to generate incremental growth. Oh, imagine trying to smear stabilization and on track for extension due to the impact by the ongoing coronavirus of breaking China will likely revised office for your 2020 August that we announced last quarter. However, the situation is still involving and the degree of full-year contribution by our rapidly-growing all life requires more data to assess we plan to provide the updated for your guidance next quarter when we believe there will be more clarity now, let me go through the business highlight. Yep.

new long only launch vehicle

One-on-one Education Services, which is an upgraded version of our existing VIP program supported by higher quality teachers and more premium Services provided through Automotive Technologies to address the consumption upgrade plan in sure when the major theaters it is and strengthen. Our premium brand image has booked cash value of over forty million for the initial two months of preparations. Not not revenues also shown how I grew by 37.2% year-over-year and it's Cheryl total revenue increased to 45% compared with 41,000 the same period last year not revenues of International Education Program or premium one-on-one Training Services for students attending international schools grew by 200 points off the $200 and 5% year-over-year with regards to happiness or premium young children maths education programs to adapt to the regulatory changes in the area of school admission practice particularly in Georgia.

Hi, we have updated our programs too.

Just a broader market demand for young children miseducation. The new programs have attracted 132.2 year old percent year-over-year close a few students same same quarter last year while the existing student signed up for earlier versions of programs have been quickly went off this represents a healthy reshuffling of students based in indicates more sustainable going forward. We are implementing AI told software and Hardware system intensive Center to improve teacher quality and enhance student learning experience with the rollout into more centers in future faces. And and the reason we wash new happy my VIP program, which is an upgraded premium package name to advance my scores while learning English at the same time has received positive feedback our students and it's and it's expected to generate sizeable growth in the near future.

oh premium young children

English education program the business continue to record rapid growth driven by strong market demand and will continue to focus on cities along the River delta to strengthen our advantage position at revenues from City of the young to live at Delta Region grew by inserting grew by 73% year-over-year. We launched your teacher program which supplements on psycho by live broadcasting programs taught by a native English speakers leveraging and Technologies. The program has been well received by students and parents. We launched iMac interactive up to connect School directors teachers students and their parents to enable intense services and also access to record classes for parenting to to reboot to review took classes.

Who was not online the premium online education services, we continue to enhance one's more online products and Technologies. We are currently developing our next generation of them are smart assessment and teaching system to create more effective online learning experience. We jointly tested model in multiple Cities of China since the beginning of 2018/2019 with online tutoring a leading premium online one-on-one tutoring Services provided that we hold a minority stake the initiative received positive outcome and validated be profitability of the model and we are rolling our smart online or more model in more than 10 cities. We have received strong initial results and plan to roll out to move in actually not let me walk you through the the other key financial details for the first fiscal quarter of 2029 revenues R&B 797.2 million, and yep.

He's of 23.2.

Percent R&B 647 million during the same period last year the increase was mainly attributable to the growth of consume cost units in an increase in speeds cuz you would cost you anything increase by 21.4% year-over-year ASP for the company during the quarter increased by 1.5% year-over-year your phone number VIP increased by around 4% compared with the same period of 2019 cost of Revenue increased by 33.6% year-over-year to R&B 516.6 million, we increased teachers compensation to attract more experienced teachers added rental costs to support growth to the business and to support our location of some of our life sentences. So Regulatory Compliance purpose and encouraged a fair amount of Learning Centers renovation cost to upgrade your own instances. So in marketing expenses increased by 7 a.m.

2717

.1% year-over-year to RMB one hundred ninety four point nine million selling and marketing expenses, excluding share-based compensation expect. Well R&B 194.8 million and increase of 17.3% from R&B 166 million during the same period last year we increased this month result of sales and marketing activities to support a new student enrollment growth and Adoption of what more effective sales and marketing channels General administrative expenses wage increase by 29.3% year-over-year to RMB 241 non-gaap General and administrative expenses, which exclude share-based compensation will R&B 172.7 million and increase of 25.8% from 170 to 137.3 million Jun the same.

last year

increase is primarily due to arrive in R&D efforts of Education technology teaching system and curriculum materials associated with both our payment of