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Ladies and gentlemen, thank you for standing by, and welcome to OneSmart International Education Group Limited's First Fiscal Quarter 2019 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today. I would now like to hand the conference over to your first speaker, Ms. Rebecca Shen, Investor Relations Director of OneSmart International Education Group Limited. Thank you. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining OneSmart's First Quarter 2019 Earnings Conference Call. The company's earnings results as well as supplementary slide presentation were released earlier today and are available on the company's IR website at www.onesmart.investorroom.com.
Joining us today is Mr. Dong Li, our Director and Chief Financial Officer. Dong will give you an update on company's business strategy and key highlights of first quarter 2019 results. After his prepared remarks, Dong will be available to answer your questions.
I will remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict, and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under the law.
With that, I will now turn the call over to Dong. Please go ahead.
Thank you, Rebecca, and hello, everyone. We are very pleased to start our first quarter of fiscal year 2019 with accelerated top line growth across all our business segments. Net revenues increased by 46.6% year-over-year to RMB 647 million, of which OneSmart VIP business and HappyMath business continued the strong momentum and achieved top line growth of 33.8% and 51.1% year-over-year, respectively. The FasTrack English business and Tianjin Huaying class programs also expanded quickly and made significant revenue contribution during the quarter. This demonstrated our strong ability to execute our corporate strategy and to effectively manage our diversified business operations. We will continue to leverage our operational excellence in managing premium education brands to expand into more diversified market segments and new geographical locations in China. As the leading diversified premium K-12 education company in China, we are well positioned to benefit from the rapid growth of the premium education market and to further consolidate the fragmented market through both organic growth and acquisitions.
Going forward, we will further accelerate our top line growth and enlarge our overall market share through the following expansion strategies. First, continuous opening of new learning centers and expansion of existing learning centers. We added a total of 52 new learning centers during the quarter and the total number of learning centers increased to 367 as of November 30, 2018, which represents a total classroom capacity increase of 47.6% year-over-year and 13.3% quarter-over-quarter. We remain determined to maintain total classroom capacity increase of at least 25% to 30% in the next 3 years, which includes opening new learning centers and expanding classroom areas of existing learning centers.
Second, attracting more student enrollments and increasing cross-selling of more subjects to the students. For the first fiscal quarter of 2019, monthly average student enrollments increased by 70.5% year-over-year, of which monthly average student enrollments for OneSmart VIP business and HappyMath increased by 28.1% and 47.4% year-over-year, respectively.
Our OneSmart VIP business has recently launched the new online broadcasting program during weekdays to provide more value-added services to our students. In the meantime, we are also expanding the operations of OneSmart digital class program and OneSmart Digital Small Group program.
Third, on pricing, we targeted to maintain an average selling price increase of 5% to 7% per annum. For the first fiscal quarter of 2019, the average selling price of our OneSmart VIP business and HappyMath increased by 4.5% and 5.0% year-over-year, respectively.
Fourth, pursuing more investments and acquisitions when opportunities arrive. We successfully acquired and integrated the FasTrack English and Tianjin Huaying Education in 2018. We also acquired a minority state in Juren Education, a leading K-12 after-school education service provider with national brand influence in October 2018. The business operations and financial performance of Juren Education are in line with our expectations. Juren Education and Tianjin Huaying Education are both highly respected education institutions, renowned for their high-quality teaching, curriculum development capabilities, experienced faculty and management team and strong brand recognition. Leveraging our refined operation management expertise, our investment in Juren Education and our acquisition of Tianjin Huaying Education will further strengthen our capabilities in offering small class services and equate great synergies with our existing business. Fifth, we will continue to significantly increase our investment on research and development in both curriculum development and integration of the latest education technology as well as incubating and investing heavily in new business operated both online and off-line. We continued to benefit from the consumption upgrade in Tier 1 and Tier 2 cities where we are incubating and investing heavily in new online and off-line product offerings in order to deliver record top line growth over the next 5 years. For example, Yimi Online Tutoring, a leading premium online one-on-one K-12 tutoring company, which we incubated and took a significant equity stake, achieved accelerated growth since its inception. We also invested in UUABC, an online kid's English training service provider, and BestMath, an online kid's mathematics training service provider, which will further expand our footprint in the online education market and form an integral part of our ecosystem. We are confident that our expansion strategies are effective and we are on the right track implementing our growth strategy and to drive the revenue and profit growth. And in the meantime, we have maintained a good balance between expansion and operational efficiency to deliver more sustainable value for our shareholders in the long term. We are delighted to see our mature learning centers continue to consistently deliver satisfactory operational results and our newly opened learning centers to ramp up quickly and achieve high utilization rate.
During the first fiscal quarter of 2019, gross profit margin of our mature learning centers increased by 120 bps year-over-year, of which gross profit margin of mature learning centers for OneSmart VIP business and HappyMath increased by 90 bps and 70 bps, respectively. While we are accelerating our capacity expansion, which may lead to some pressure on our operating margin, however, we believe the impact would only be temporary and we will continue our focus on improving the overall operational efficiency and profitability to achieve margin expansion when we maintain stabilized expansion speed. The following are key highlights of our core business segments during the first fiscal quarter of 2019. For OneSmart VIP business, which is the exam preparation, overseas study consultation and study camps services business. Despite the fact that we opened 6 new learning centers in Shanghai during the first quarter, non-GAAP operating margin in Shanghai for OneSmart VIP business remained above 40%. The gross profit margin for mature learning centers, which refers to learning centers that have been under operation for more than 2 years, increased by 90 bps year-over-year. In the meantime, we continued to see strong momentum in monthly average student enrollments with growth by over 50% in cities including Suzhou, Wuxi, Xi'an, Chongqing, Yancheng, Wenzhou, Zhuhai, Tianjin, Lanzhou, Chengdu, Shenyang and Huizhou. We opened a total of 17 new learning centers during the quarter for OneSmart VIP business. And for HappyMath, which is our kids mathematics training programs, we continued to see accelerate our growth in HappyMath. Revenues increased by 51.1% year-over-year to RMB 106.5 million from RMB 17.4 million in the same quarter of last year. While the monthly average student enrollment increased by 47.4% year-over-year to 200 -- to 26,000 from 7,500 -- 17,500 in the same quarter of last fiscal year.
The gross profit margin for mature learning centers of HappyMath increased by 70 bps year-over-year. Revenue growth exceeded 100% year-over-year in cities outside Shanghai such as Beijing, Shenzhen, Chengdu, Xiamen and Suzhou, benefiting from our customers' increasing demand for the Chinese language training and science programs, the average subjects taken by each student expanded rapidly. More than 7,900 students were enrolled for the Chinese language training class during the first fiscal quarter of 2019 under the HappyMath program. For FasTrack English program, which is our English training services, we repositioned FasTrack English as premium kids English training brand with focus on STEM English and expanded the operation into new cities including Guangzhou and Shenzhen with a total of 6 new learning centers opened since our acquisition of FasTrack English.
And the new student enrollment increased by 55.6% year-over-year, compared to approximately 30% historical growth before acquisition. The above demonstrated our strong acquisition and integration capabilities, which will continuously accelerate the growth of FasTrack English business nationwide.
Now let me walk you through the other key financial details for the first fiscal quarter of 2019. Operating costs and expenses for the quarter were RMB 708 million, an increase of 54.7% from RMB 457.5 million during the same quarter of last year. Non-GAAP operating cost and expenses, which exclude share-based compensation expenses were RMB 689.9 million, an increase of 52.7% from RMB 451.9 million during the same period last year.
Cost of revenues increased by 53%, year-over-year, to RMB 386.6 million. The increase was primarily due to the opening of 142 new learning centers since the end of the first fiscal quarter of 2018. Accordingly, the company incurred more rental expenses as well as more personnel costs for teaching staff and study advisers. Selling and marketing expenses increased by 56.4% year-over-year to RMB 166.4 million. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, were RMB 166 million, an increase of 56.2% from RMB 106.2 million during the same period of last year. The increase was primarily due to the opening of 143 new learning centers since the end of the first fiscal quarter of 2018. Accordingly, the company incurred more marketing expenses and employed more sales and marketing staff.
General and administrative expenses increased by 57.3% year-over-year to RMB 155 million. Non-GAAP general and administrative expenses, which exclude share-based compensation, were RMB 137.3 million, an increase of 47.6% from RMB 93 million during the same period last year. The increase was primarily due to our enlarged investment in research and development as well as the opening of 142 new learning centers since the end of fiscal quarter of 2018. Accordingly, the company hired more management personnel.
Total share-based compensation expenses, which were allocated to related operating expenses, increased by 220.8% year-over-year to RMB 18.2 million in the first fiscal quarter of 2019.
From the balance sheet, as of November 30, 2018, the company had cash and cash equivalents of RMB 775.4 million and short-term investments of RMB 748.3 million. OneSmart's prepayments from customers balance, which represents cash collected from enrolled students for courses and recognized proportionately as the tutoring sessions are delivered, was RMB 2.2 billion at the end of first fiscal quarter 2019, an increase of 11.4% from RMB 2.0 billion at the end of fiscal year 2018, which was reflective of the latest regulatory requirement that prepared tuition fee cannot be more than 3 months.
Capital expenditures for the first fiscal quarter of 2019 were RMB 80.2 million, an increase of RMB 53.6 million from RMB 26.6 million in the first fiscal quarter of 2018. The increase was mainly due to leasehold improvements as a result of the opening of new learning centers and renovations of existing learning centers.
Turning to guidance for fiscal year 2019. We maintain our guidance and expect our net revenues to be between RMB 4 billion and RMB 4.15 billion, an increase of 40% to 45% from fiscal year 2018. This forecast reflects OneSmart's current and preliminary view, which is subject to uncertainties.
This concludes our prepared remarks. I will now turn the call to the operator and open it for Q&A.
Operator, we are ready to take questions.
[Operator Instructions] The first question is from Sheng Zhong of Morgan Stanley.
I have 2 questions. The first one is, just wondering now how much revenue and profit contribution is from Shanghai? And if we look at the top 5 cities, what the contributions are now? And secondly is, what's your estimate that the -- your teachers certificate holding ratio will be after this recent test and the interview? So do you think the teachers license requirement will be some uncertainty for your fast growth outlook in this year?
Okay. So your first question is about the revenue and profit contribution from Shanghai, and also the top 5 cities in terms of the revenue and profit contribution. Okay. So for the first fiscal quarter of 2019, Shanghai -- and it combined contributed about 60% to our total revenue. And compared with the first quarter of fiscal year 2018, the number was 62%. So there is -- so it decreased from 62% to 60%. And for the top 5 cities, so other than Shanghai, the other 4 major cities that contributed significantly to our revenue and profit are Guangzhou, Hangzhou, Beijing and Nanjing. So basically, I think, Guangzhou and Hangzhou, they contributed about 5% during the quarter. And Beijing and Nanjing, they each contributed about 4%. This is in terms of the top line revenue. And then on the profit, I think Shanghai contributed about 70% in terms of the total revenue contribution. And then the top 5 -- I'm sorry, in terms of the total profit contribution, the top 5 cities contributed about 85% for the first quarter. Okay. So this is for your first question. And then your second question is about the teachers teaching permit compliance rate. So based on our -- okay. So based on our internal statistics, so as of now, our overall teachers teaching permit compliance rate is about 50%. And we expect our overall teacher compliance rate will reach to 90% or above after the next 2 teachers permits examinations in 2019. And on the other hand, for all those new teachers that we hired, we basically require them to have the teachers teaching permit as a must. So we -- our current expectation is that we are hoping our teachers who do not have the teachers teaching permit to take the examinations. We are helping them to attend related examinations and we provide related trainings, and we expect our overall teachers' compliance rate will be above 90% by the end of 2019.
The next question is from Edwin Chen of UBS.
We saw that in the first quarter, you certainly delivered a strong top line growth but in the meanwhile, margin came down quite a bit. So I was wondering can you update us, first of all, the capacity expansion guidance for the full year '19? And also in order to achieve that what's the margin expectations are for the rest of the year? That's my first question. And the second question is, given the very strong capacity expansion in the first quarter, do you experience or do you observe any regulatory impact to your capacity expansion plans? If not, can you give us the outlook for the potential regulation updates for the rest of the year?
Okay, sure. Thank you, Edwin. Okay, sure. So on the first question, in terms of the overall capacity expansion, so the company remain our current capacity expansion plan that we are on the right track to open a total of 140 learning centers for the full year. And -- yes, and in the first quarter, we definitely accelerated our scope and we opened 52 learning centers during the first fiscal quarter. And then for the full year, we are still on track to open a total of 140 learning centers. And in terms of our capital expenditure for the next 3 years, we have to achieve at least 25% to 30% capacity expansion in the next 3 years. And then in terms of our guidance on the margin. So I think for the operating margin for the first fiscal quarter of 2019, I would like to add the following. First, please note that the first fiscal quarter is usually the slowest season of the year. So the effect from some incremental costs and expenses on margin would be scaling up. And secondly, we are accelerating the capacity expansion of our new and existing learning centers. We added 142 new learning centers from the end of the first fiscal quarter of 2018, which represents a total of 63.1% increase in the total number of learning centers. And this may lead to some pressure on our operating margin. However, we believe the impact would only be temporary and we will continue improving the overall operation efficiency and profitability to achieve margin expansions when we maintain -- stabilize the expansion speed. And we are pleased to see the gross profit margins from our mature learning centers increased by 120 bps year-over-year during the first fiscal quarter of 2019. And we are confident that our new opening -- our newly opened learning centers will ramp up quickly and achieve higher utilization rate when they become mature. And thirdly, on the new regulatory measures. So we do not think like material negative impact on our overall school opening and growth opportunities. And there could be some incremental admin costs and expenses incurred as a result of implementing the policies in certain cities. And we -- but definitely, we do not think that, that's going to have a material negative impact. So turning now to our guidance on the margins for the full year, we remain confident and targeted to achieve a non-GAAP operating profit increase by 20% to 25% for the fiscal year 2019. So this is our guidance on margins for the whole year, a non-GAAP operating profit increase of 20% to 25%. And then your second question is about the new regulatory environment and whether this had any impact on our business? So on regulation, the recent enhancement of regulatory measures in relation to after-school tutoring companies. We think it has significantly reduced the entry of barriers for the industry and it's promoted and improved the market standard and enhanced the overall customer experience and supported the healthy growth of the overall market in the long term. So as always, we are committed to build a high-quality and sustainable education platform to our students. And we are formally supportive of these reforms. As a leading education service provider in China, we believe that we will be at the high level in the industry to meet these new government measures. And we also expect China's after-school education market to further consolidate and as a -- without OneSmart education and as a leader in the industry, we'll further consolidate the fragmented industry and acquire more market share in the mid- to long term. And at this stage, the new regulation measures are currently being implemented on a city-by-city basis. Even though we continue to foresee some uncertainties around the implementation procedures, the current impact we think so far is in line with our expectations. And overall, we do not expect to see material negative impact on our growth opportunities nationwide. Okay. So this is our comment on the second question.
[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Rebecca Shen for any closing remarks.
Thank you, operator. In closing, on behalf of the entire management team, we would like to thank you again for your participation in today's call. If you have any further inquiries in the future, please feel free to contact us. Thank you.
The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.