Q3 2020 OneSmart International Education Group Ltd Earnings Call
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Good day and welcome to the one Smart International Education Group Limited financial results for the third quarter of 2020 conference call.
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Thank you operator.
Good morning, good evening, everyone and thanks for joining once more international education, keeping them too. So that's the quota twentytwenty, earning coking coal the Companys earnings myself as well as supplementary slide presentation, where at least audio today and are available on the cold.
These are all website at <unk>, our dog was not thought Oh Gee.
Joining me this cool I'm used to Steve Jones, Chairman and Chief Executive Officer, and mid West tool, our Chief Financial Officer, and Chief Strategic Officer.
I would remind you that well may contain forward looking statements made under the safe Harbor provision on the private Securities Litigation Reform Act of 1995.
Such statements are based on managements current expectations and current market and operating condition.
And it relates to use then that's evolved known or unknown risks uncertainties and other factors.
Which are difficult to predict and the minimum wage poppy young companies can show.
Which may cause the company's after without performance or achievements to differ materially from those either forward looking statements.
Funding inflammation regarding these and other risks uncertainties and Dr. included in the Companys body with United United States Securities and Exchange Commission.
The company does not undertake and the education.
Forward looking statement.
That's all from you inflammation future events or otherwise, except that I feel quite the minimal.
With that I wouldn't know tend to go over to Steve. Please go ahead.
Oh, Thank you I know.
Everyone understand cool weather interesting because they are names Crescent bridge.
No that's a physical qualcomm's, who sells in Poland was no most I try to give them one thing always copious operations history.
Strictly important local government skyline.
We have taken problem. That's just a quick [laughter] health and safety up all students and simply.
No one oh teachers, the white dedicated to prepare students OWS academically and the mentality going to go.
Which are key milestones.
Every try these students like.
Oh efforts have been much appreciate it all feel good.
[laughter].
That's a bad peafiel more detail later.
Today I'd like to pick up your opinion, Scooby Doo WOP strategic focus we feel.
Consistently oh business and a close you guided by Street.
Oh, that's study one small that's Cleveland well see usually every that's a bobby on track record on what's not students' academic excellence.
College, the Michigan once must do that more than 50% higher national reach an high school, the Michigan was mosquitoes.
40% to 60%.
Hi, there at least your blog trying to I guess either.
Waiting, but no premium quality off [laughter] letting you said.
Got it makes it look like.
Secondly, we thought it all caught up in.
[laughter] by customer.
Where do you spoke to that crazy for personalize the many ways more Kevin are they getting.
Personalized 'cause it.
Sorry.
Each can give you give us do that makes MCU claim that drive exit.
Last month, we couldn't get.
Caught up with technology hats.
Yeah.
What do you have to benefit a little about teaching system yoki.
They have Jay, but I wouldn't like Apple <unk> <unk>.
Exactly.
Well my only measured though.
People.
Huh.
[laughter] that ship.
No I'm not sure bucket and the penetrating new markets.
Yes, the pick the manner.
I went out on the call that good luck, who had the what you're more.
The company performance.
Please go ahead.
Thank you see Hello, everyone and thank you all for joining US today, maybe start with the overall pieces update the fundamentals continue to be solved with one or one thing that's becoming stronger.
Let's talk kind of operations.
But what we might see huge you want the hard [laughter] quarter.
While we're not incentive it would be temporary oh, well public schools in China also be temporary coastal without reopen scheduled being called white.
Oh classes that customer acquisition conducted through our own microphone. She leaves me.
The lease properties, that's all focused for more than 90% Health Center.
The real.
However, we think the once it's hot we remain very positive wasn't long term outlook due to full name leasing for the man for Heidi bucket and clean in education services, increasing the whiskey monkey ships.
[laughter], increasing numbers of consumers better educated and because you got one on one woman pullback that better.
Thank.
There was much greater Soviet possibly even extremely positive feedback by parents and students at pool industry consolidation opportunities arise for one small that's a market leader, we didn't want one education sobi sector.
He six ballpark, who gets the contagion summarize all night online and offline Kaufman.
Oh, you're solving offline operations cover Hebei equal one on one what children and young true in education, each from Sweet 18 years old.
Got it just takes you broke out like Oh, My education technology was able to better serve customers will walk.
<unk> study schedules and teaching resources.
The issue.
Locations.
The combination of offline and online products and services that you got some experience and loyalty.
Okay, Great smart teaching and the management efficiency.
40 of long term healthy.
No it's kind of takes up.
As shown on this page one smart one the one hour equals one or what to do any shift that's been a thought we'd sheet, we've covered backed by weak demand.
That's off today more than 90.
Nationwide, nor do you think that's was open.
Did you see buckets like resurgence koby might see what do you have access one small.
[laughter] ongoing education until further notice.
Oh.
Yes has recovered to roll by 29% 25.
In July and August to date.
[noise] fiscal year queued up 21, we'll continue our offense or upgrade and expansion. He was cop 20 cities.
[noise]. According to recent market studies, we have visualize the ti consumption habits apart direct customer.
HM.
They are mothers well keep most students from Athlon families top 50 cities in China.
Sure Hi, supported the lifestyle.
Its purchase hi, Paul that's still out there.
Oh.
Did you I haven't seen just spent.
The same upscale hotel such as myerson dosing for holidays.
They engage primary arts teachers private sport coat.
It should be.
They are hard to considerable one small one on one good.
Based on one of the global BT consumer consulting firms analysis.
So while one small serves only 3% those harkett families.
We still have a huge potential to expand our shares the premium that you pitches sector as large under served addressable market.
Kitchen matching that piece all good news from all at once my one on 190 cents I can show.
No problem, because I know that student how has that she upsell he's shown HEICO called this year.
Your skin study once Mark center for six years.
Just.
His mother of saying we are grateful to once more teachers.
Dedicated efforts, especially given different data this year.
Personalized curriculum and software Pitchy how quick.
We on skis, I mean Palmer, Andy effectively who is Dundee school.
Okay, we congrats.
Oh and his family on the estimates we felt we believe more families across China, we're getting engaged with westmont because of the adult great experience.
As Steve mentioned earlier, we continue to solidify our previous positioning and the previous pricing policy to upgrade in products and services.
HM.
It's not one or what we need we I keep Brooklyn launched since the beginning of fiscal year 2020.
We have started to upgrade already centric offer largest possibly with the intelligent and each active teaching to listen platforms.
The better environment enable us to pediatric clinical study experience.
Thank you like VIP, Oh students will have highly selective teachers with extensive teaching students to meet their higher requirements.
Yes, a day this newly launched products generate Castro RMB 94.5 million, representing 3% once Mach one on one piece is cats catch up.
Yeah, we actually I point, you can higher than a record at one on one spot with a high expected margin.
Well just continue to walk you basically a 2021 starting in September.
Yes.
Our goal is to generate about 20% of once not one on one piece is cashed out funny, we actually program near future.
Now, let's let's move on to our younger children execution business on page 11.
Yes, it would probably be slower compared with our kids well, one or one student.
Due to later we assumption.
Activities well younger children in the third fiscal quarter.
Most recently, we see a good even though its growth momentum.
Yes, we cover to grow by 12% year over year to date.
Based on all.
Customer Sobeys weekly the primary demand has shifted from elementary school mission preparation for that one of them at both nor any color for young children.
Just oh product and somebody's combinations to quickly capture the Bobby <unk> I'm in years.
Fiscal year 2021, 21, starting September we are going to upgrade products.
Great and open new centers, you see Lexus Cds.
Also a software upgrade program and that these two brands.
Number one to one well my business as shown on page 12.
Oh, My gosh, it's probably like convenience and the complementary services to our children.
On a form of take off services.
Most of our customers did you can engage with once much occasions slow off my attention and I'm also pockets are taken on weekends.
However, with the introduction of one small line those existing Oh, my acquire customers are able to scheduled there you could mental own lifestyle throughout the entire week to achieve a highest frequency batteries out with net immigration issues.
The addition to own lifestyle offerings will also drive up hours subject to student racial which is average subject taken by the student.
For example, if student takes much course in our off my sense, Yeah, why payment history course, as well my thoughtful.
Currently Oh subject to student ratio is about 1.3, and then we expect students would take additional subject. Thanks for the convenience and high quality provided by once all night as it rolls out.
This is talking to drive up the subject to rate to student racial to 1.7.
Our target.
In fiscal Q3, Oh, queued up 20, well my business generated RMB 59 million catch up.
Sequential increase of 128% growth I mean.
Total cash out in the quarter net revenues from all my business totaled RMB 46 million exponentially increase of 47% accounting for six months and total net revenues.
Those bigger reflect pure online users only.
If we add that well nice courses taken by off my students cast doubt net revenue were RMB 165 million and RMB 54 million for fiscal two three representing 543% and 74% sequential growth respectively.
Before I walk it through the financial result in more detail I'd like to elaborate on that one no impairment loss fiscal Q3 as shown on page 21 in Q3 with book impairment loss of RMB 335 million reduces 15 MSP companies.
What's the primary cost, but what we like outbreak we used to prudent approach evaluating financial performance Oh Pizzimenti companies.
Hi, This is mark Oh, you mean, that's not not by at least 80% for 40 to 50 and that's two companies.
We will continue to speak to a highly selective investment.
The only consider opportunities that can you help the growth of our core business.
Oh, yes, Mark Oh laundry nothing balance dropped significantly to 1.1 billion. That's endorse Q3 fiscal year 2020, [laughter] from RMB 1.5 billion, that's endo peculiar to the other night.
There were making investments are expected to be solid with more upside potential downside that huge.
In summary under the unprecedented event then the dynamic.
The nature of our personal like education program demonstrated here he shit performance that students weighted in fiscal Q3 back to school and exam seasons to me student services.
Yes demonstrated by recent Swift, we bought the return of strong year over year growth you Cook to pool.
This is fundamentals remain solid and the consumer demand well Heidi bucket and you get education services it equally.
Currently we expect fiscal Q4 revenues to grow 21% to 34% over physical two three and the margins will return to the equally likely level over the next few quarters.
Looking forward, we expect strong revenue.
Well at the margin recovery <unk> fiscal year 2021 and beyond.
Every and it seems like major factors firstly, the maturing well use the open learning centers.
57% of then well open the last three years not ramping up as planned.
And secondly, the new offerings of upgraded pre and product mix shift really improved economics over the next few years.
With that I would turn it over to either by the peace. Thank you Brett innocent well still be cool Twentytwenty net revenues were RMB 744.9 million a decrease all 31.9% from I mean, 1090 3.3 million given to.
Thank you remember last year.
The decrease was mainly actually go to the temporary shut down all of our offline learning centers for Colgate 19 related government to Aquinas offset by the incremental volume from online platform.
Cost of revenues decreased by 11 point, 11%, Yeah, we get to RMB 482.6 million, we actively managed it down to stop Hawk brand called and other related costs, partially offset by the increase in the depreciation and amortization cost of money.
Sure our center expansion and upgrade prior to the pandemic.
Selling and marketing expenses decreased it decreased by 17% year over year to RMB 165 million.
Non-GAAP selling and marketing since it which exclude share based compensation expenses were a and b one can be.
Ah 64.8 million a decrease all 17% from RMB 198.5 million doing the things get real watch here.
The decrease was primarily due to our disciplined expense control and the less cash no genereight. It's doing the quota when all is learning centers remained close until the late May 2020.
General and administrative expenses decreased by 23.7% you only get to RMB 174.7 million.
GAAP general and administrative expenses, which excludes share based compensation were RMB 136.9 billion, a decrease of 35.9% from RMB 213.8 million doing the things here, we'll watch here.
The decrease was primarily due to our expense control policy to keep a healthy financial condition during cold at 19.
Let me now move on to cover some other key financial point for the third fiscal quarter 2020.
Capital expenditures for Q3 fiscal year were RMB 20 million I.
It's all 45% from RMB 37 million in the same period last year.
Capital expenditures accounted for 2.7% off net revenue in Q3, you're presenting a guilty you'd be creep up 70 basis points from 3.4% in the same cubo talk to you.
The difference is werent, mainly because we prudently manage our cash flow and the temporally suspended lease hold improvements due to covert lunching.
Well, it's mark prepayments from customers balanced.
Which represents cash collected from enroll students for cost it and it was nice disproportionately after training sessions are delivered wars RMB 2359.
Union at the end of fiscal year, Twentytwenty Q3, a year over year increase of 6.4% from the end of fiscal year 2019 cute suite.
As of May so difficult to 2020, the company had cash and cash equivalents, we just had cash and short term investments all RMB 1805.
Million.
Based on our latest estimate.
Expects to generate net revenues of RMB 900 million to RMB 1 billion for the fiscal Q4.
Presenting a sequential growth of 21% to 34%.
Oh, the reaffirms our revenue guidance, Oh, RMB see <unk> thousand 830 choose see solid and 430 million for the full fiscal year 2025.
Fiber. This outlook represents was more currencies, which is subject to change because the Toby 90 impact is still ongoing and its future development to remain unclear.
This concludes our prepared remarks, I'd now turn the call over true operator, and open for Q and eight.
Operator, we're ready to take patches.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
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At this time, we will pause momentarily to assemble a roster.
And our first question comes from Shanghai Long Oh from Morgan Stanley. Please go ahead.
Hi, I'm, even mean, Steven that tallgrass I. Thank you for taking my questions. The first question names. So I cannot tell us what the match and I look for Q4 and does it come to an age I be your online between Ah looks attendees very good.
And so can you share some off the near term Takeda all ski Oh, My speech and it's maybe as a percentage all feel I'll be happy people that's Dan.
And do you see I mean that kinda, but I think certainly feel offline business and so we'll be out we the online as well what people can fall about offline infinite capacity expansion.
A in the rest of it yes and also in next yeah. Thank you very much.
Thanks.
Appreciate the questions. Thank you so much for joining this call.
The take your questions one at a time, but first question regarding margins, although she pool.
So as we mentioned that we have we see very strong catskills.
Recent monkeys with July and August.
Those actually.
A record number of historically bought so that he became very strong demand you know corpus.
Especially office incoming call. So with that we provided the guidance of RMB 900 to 1 billion or revenue compute pool. So as we also mentioned earlier to doing that well be Nike <unk>, we have excellent job in terms of coffee expense can.
So which means we have knowledge buner cost structure. So we are pretty optimistic all marketing tool.
Well still be hard to providing that.
Margin number not guidance, but if you use Q4 results that the proxy, which as you know we generated RMB 745 million revenue and a small law operating loss for 39, and well non-GAAP operating losses, if we all right.
You could you please.
And generate 900 to 1 billion, we expect that pretty sizeable positive.
Operating income for people.
So before your second question regarding you know one small like our target share.
And in terms of percentage of all our offline one the one business.
Yeah.
Let me.
Right that.
One small nine we all.
We'll continue to grow.
Oh, well its strategy. We appreciate it it's a value each other providing convenient and the complementary services to our existing student potential use.
So.
Currently that's you know in Q4, one small nice to talk about eight cents or casthouse.
We expect consumer to continue to experience well lots more all night, it's already and good nerdy result, so it doesn't maki shall we expect continued to grow the future, we don't hobby arkon well that consumer to should be side, so that that can be.
And then valley driving gross but you didn't he wasn't all night will create incremental growth going forward, which means it's concert at fishing looking or what issue.
We have very weak and thankful to our kids beauty muscle, especially if the reason koby Nike Kerry.
Oh your third question regarding.
So on equalization with offline operations. So we I think a fair question I think we have observed and studies.
Seamless situations in other industries, we experienced the same thing that piece clearly was a waterfall, but let me let me let me elaborate and I'd emphasize that are the ones. That's my one will want this is <unk> service the different the Matt.
Especially all night show you provide maybe can you provide flexibility.
Choices for students so we have excellent.
Earnings caught that what's known as well.
A complementary services to the existing students as well as <unk> asset swaps for additional use it is in the area that I'll offer my son, who didnt cover yet.
So having that even mine so we.
We have clearly.
Well the night our teams did a format that for example, what the.
Middle of this week.
As you know high frequency well my cost him and we have all is the off my team to handle those business clearly that's the alignment of interest at no cost me.
But for additional new customer, where all existing nascent im not sure we had a separate team for one of that business because it clearly different meet you would have clearly a separate the two to be turns talk lumpy.
Issues that really help us to avoid any colleagues monetization potential.
So so far we have people operating pretty smoothly.
I don't see any major tunnel.
Conflict and that kind of life is kinda monetization customer perspective.
Your first question is regarding capacity expansion plan going forward.
For the near future as we mentioned our strategic focus is easy we ask you programs you fall and fiscal year 2021, little bit will continue and spend a lot of time upgrade our learning centers open you VIP, nor any sense as always.
Open more well be I see pockets for our students definitely there is but your trends a number of 90 cents extensions, we have two separate or expenses rose for the one or what we have been very clear we want to further continues to grow top 20 cities we can.
She O'neill skills. Those 20 cities. So we'll continue to open Warner Center, the new people here for the one a lumpy, but well for young children education programs that we mentioned already leased for long time to resumed normal operations as that'd be cobi Nike impact.
Oh, absolutely opening schedule B, leaving behind schedule. So we will all priority <unk> priorities to fuel use existing centers for the young children, but in the meantime, we've also upgrade our young children's book by what we thought.
Yeah, he monies and lowest upgrades and.
This is summarized our expansion strategy going forward.
Thank you Greg.
Our next question comes from Felix Leo of you'd be yes. Please go ahead.
Oh, Hi, Hi, Good evening management. Thank you very much I take my question my.
My first question is regarding to the hour.
Well trajectory from here I understand that Q3 has been you know negatively impacted by called benign can't buy what do you expect the revenue.
Level to return back to normal going forward, what are the recovery trajectory for the topline, but the margin and my second question is all consumer preference poets Carbonite stance.
We see or some competitors, saying that a portion of the parents hard now are becoming more open to the online formats or is that causes and oh, well, they're seeing and no one wants space.
Oh My third question is how are learning center assumption or I'm pop up I see T O <unk> I understand that you have a.
Very much Florida or already successful operation bench, how hot or how are the situations outside Shanghai I recall previously I you know during the period up or rapid expansion.
The utilization of no Shanghai Saar volatility on the pressure its or so or when do we expect that to Tim cope calling card on thank you.
[noise], let's take a fixed.
So the first question regarding the revenue and margin trajectory from here. So obviously Q3 has seen a quarter mostly fit inside.
But as we have explained earlier in the call. It that we have seen and those are very strong demand for our business.
The recent months six or so are they you know discussion with our consumer areas and student no.
These people experience pretty.
Difficult and specialists huh.
During the.
February to June.
Our next year is.
There's locked up the country.
Close out public schools, they lots of uncertainty all week on bucket. So they have taken a lot of all night, it's due to the pure time makes all they will have to phase the exons, especially since on Coke, which is the late this year.
You know so they have lindelof during that period of time, well due to compare different education programs, but its online offline, but they conclusion clearly that once must one on one.
Oh, well, it's really very factories select the best estimate stewards, helping that we have elaborate already in this discussion.
So he's off well suited.
This year, so that probably explains why we have seen.
As sales gross or 25% to 29% year over year.
We reported recently.
So we're very encouraged by this result so.
With that we would rule what predictor is pretty strong gross or do you fiscal years 2021 study started with September we would we expect to what to do all historical topline growth.
30% Clos.
Next year.
So if you just market you can you talk one groceries due to the low level without leaving or cost that structure that we we achieved during the open Nike period, we are optimistic or marketing as well.
So we expect to the market to be took it back to the clean coal. We know you. The next few quarters.
That's exactly how many it's hard to say.
Imagine and it's up to one next year still well have some terrible impact cycle. The Nike mid Q1, which is September to November historically has been a low season.
Activity. So I think you looked at the mall.
<unk> margin expansion towards the later all of the year. So that's the answer the first question.
The second question regarding consumer preference I think that's excellent question we have.
Done Oh.
Research consumer service utility as well because the window here.
Obviously this year.
Turning the education programs.
But let me let me point of view point number one.
One last one no one tedious education so basis.
Were very different thing that the typical masinloc it sounds as long as the all night education programs that we mentioned.
Oh.
Our next fall.
We have sobi their students in the Middle School High School, who.
Okay. Appreciate very effective one of the one personalized learning experience, which can help to quickly improve their score.
Well.
Especially its income goes off so we you know we're certainly all 2005 branches a parent.
Not more than 90 pinned up then have responded that if prefer.
Once more.
One on one.
I should say, so, especially awfully centers, they provide better he's up the other.
Having said that I think I, we also recognize it sounds good.
But they still cliched online.
Because that's what we did more choices something better teachers right. So as.
Well as I mentioned earlier well the parent.
Let us to decide what they want all went off like we provide schools surrogate hi accordingly.
Fashion, So I think the Sunrise study.
Yes, the consumer wants to have a.
Quality education, and CBS experience or the clearly wants them all.
Once the offline.
Right. The best services. So I think that Downcycle second question regarding consumer preferences going forward I think your last question regarding the.
Isn't that ramp up.
Situation, especially Sunshine.
I I mentioned, we still had really.
Last number when you said that that are.
Quite a young so I mentioned 50, so he was set up that over the last few years. It's every day.
Let me mention in Shanghai as well.
We did as well by the ramp up result is poor because those are.
Do we need to make so much that make it would be cobiz here, but we will continue its those remember of course you coupons.
But I can tell you all are ramp up steel and largely on track as we have been heaters, which.
Which means that well be healthy gross.
I'm going to Bob So with these montblanc number off the beaten bumping up at the same time.
That's very competent overperformance largely toby.
Going forward, which ties back already questions.
Okay. Thank you very much cracking very helpful.
Our next question comes from Tommy Wong of China Merchants Securities. Please go ahead.
Oh, Hi management, Thank you for the.
Hi, Greg.
[laughter] question, a lot of people enough I business right now.
Industry consolidation I think some of this year I think about next year or even a year.
I know we have added a lot of capacity before enriched married shooting fish in wise as.
But the other than the other hand, I heard from other players like 43% Shopify.
In sensors shuts down and so.
It seems like a lot of the competition has.
Here and so.
How do we know how do you think about you know the investment.
You know what are you what does the nice and thinking about investment for.
Fashion over the next year.
What are you hearing from the local market focus.
So called industry.
<unk>.
Yes. Thank you told me a quick question I think if this is a good question as well. We are you actually mentioned as early as you know presentations a consultant consolidation. He is a long term cost effective proper going forward and that we echo your observation that discussion other for.
As we have well deserved similar trends. These a lot of smaller scale see it has been.
Pretty challenging for them to to recover so we absorb that when the government allow to reopening learning centers. We found many often cannot be we open hole forever. So I think business sector in our onetime impairment losses as well a lot of smaller players have you.
We must be weekend, the insight that the performance fees up.
That means opportunity for larger players like us we are mccullough either the one on one space as you seen Oh, very rocket and Sweet reshape. The response, both all the catch us actually I think a cottage because with that reason, we previously we will find them.
Harder for us.
Our new signing up new students to walk in but we found out Oh conversion rates and number of Lucky 12 money send us much much improved than before so that's very encouraging in the sense loss to two going forward so with that in mind well continue to focus on the.
Cash tillotson at signing up new students, which.
Do you know what generate future revenues and also with it we will also do opportunistic acquisitions Oh.
Maybe not companies, but also but the students Neal, but we're trying to acquire a student obviously is in a large number through some transaction regimens to take advantage. If there's opportunities. So to summarize we do believe industry consolidation provides a pop.
Hi, good.
Opportunity for lots of places like us.
And they will continue and to take on what taking advantage of that.
Okay. Thanks, so it makes sense. Thank you good luck.
This concludes our question and answer session I would like to turn the conference back over to Miss Ida Yu for any closing remarks.
Thank you operator, and closing on top of the entire management team well you'd like to thank you again for your participation in today's call. If you have any well that inquiries in the future. Please feel free to combat. Thank you bye-bye.
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