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Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to OneSmart International Education Group Limited's First Fiscal Quarter 2021 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. Ida Yu, Investor Relations Senior Director of OneSmart International Education Group Limited. Thank you. Please go ahead.

[Ida Yu, executive]

Thank you, operator. Good morning, and good evening, everyone, and thank you for joining OneSmart International Education Group Limited First Fiscal Quarter 2021 Earnings Conference Call. The company's earnings results as well as the commentary slide presentation were released earlier today and are available on the company's IR website at ir.onesmart.org. Joining me today on this call are Mr. Steve Zhang, Chairman and CEO; and Mr. Greg Zuo, our CFO and CSO.

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 United States 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 Steve. Please go ahead.

[Xi Zhang, executive]

Thank you, Ida. Hello, everyone. We are delighted to report a good start in fiscal 2021. All our key metrics are recovering, and the year-over-year comparison gaps are further narrowing. Our Go Premium strategy is executed well, on track with significant enhancements were made on products, teacher profiles, learning centers and the premium brand awareness. Our recently launched Elite VIP product has achieved strong cash sales, thanks to its distinguished value-added premium offerings in power learning ability and the school admission planning, on top of the basic score improvement feature.

Our teachers' profiles are continuously improving, and they are highly selected and well trained to satisfy students' and the parents' evolving needs for academic achievements. By the end of January 2021, we have refurbished 83% of learning centers. The upgraded center study environment will provide a superb experience to our products. In addition, we are making great efforts on premium brand building and the local marketing to more effectively reach our target customers. OneSmart's brand position of premium tutoring is rooted in target families minds, evidenced by improved brand awareness in selected cities.

With the consumption upgrade in China's education sector, the premium K-12 after-school education sector is an enormous underserved market. We will continue to leverage our [ resourceful ] platform and our innovative products and services to capture growth opportunities. As a leading premium tutoring service provider, we are confident to expand our market share in this fast-growing sector and to achieve RMB 10 billion by 2023.

With that, I will now turn the call over to Greg, who will provide you more details about strategic achievements and then an update on the company's performance in Q1. Greg, please go ahead.

[Honggang Zuo, executive]

Okay. Thank you, Steve. Hello, everyone. Thank you for joining in us today. I would like to start with comments on the overall performance before I go through individual presentation slides, which was uploaded onto our company website earlier today. As we kick off the new fiscal year 2021 in September, the pandemic has generally been under control and the business activity in China are getting back to normal level, thanks to the tremendous efforts made by the government and the people.

OneSmart has also moved to a new phase of growth post pandemic and are proactively investing in our core business to build a long-term successful enterprise. Our company-wide cash sales year-over-year growth has continued to trend up, recording positive 14%, 23% and 37% in the December 2020, January 2021 and mid-February 2021, respectively. The balance of our prepaid tuition has reached all-time record level at RMB 2.75 billion by fiscal Q1. This is a result of strong demand post normalized public school schedules, enhanced customer satisfaction, driven by our premium initiatives and our enhanced customer acquisition approach.

The Go Premium strategy that we launched in the beginning of fiscal 2021 is structurally resetting the unit economics of our business model, making it more financially attractive in the future. For year-to-date, FY '21, the average unit price of new purchase of our core VIP segment was RMB 44,000 per student on average basis, representing 73% year-over-year increase from the same period of FY '20. This set up a much higher per student revenue, thus a much more robust unit economics down the road. Encouraged by the initial success of the Go Premium strategy and justified by the increased revenue profile, we will continue to invest in our core products, teacher credentials, learning center environment and build our premium brand. In the fiscal quarter 1, our marketing expenses accounted for 8% of cash sales, which was in line with the pre-COVID FY 2019 level. We primarily leverage our off-line center presence and resources to more effectively attract customers through building a higher brand awareness and creative local marketing activities, which mitigates the intensified online marketing competition in the industry.

I will now turn to our earnings presentation slides. I first start with Page 7 to provide our operational achievements, as illustrated on the presentation. First, we have upgraded offerings across VIP products, including the successful launch of Elite VIP product with value-added premium offerings in learning ability and school admission planning. Our cash sales from premium products picked up quickly in the fiscal Q1, accounting for 12% and 9% in OneSmart VIP business and the Young Children Education business, respectively. Second, by the end of January 2021, we had 83% learning centers refurbished and 12 flagship centers opened to enhance premium customer experience. Third, since December 2020, we have conducted comprehensive marketing campaigns in the PR events, including premium tutoring product launch conference and other intensive but innovative local marketing activities. As a result, the premium brand awareness rate has improved by 20-ish percentage points in some key cities, for example, Changzhou and Nanjing. Fourth, we have also upgraded the teachers' profile for Elite VIP program by certifying 550 VIP teachers so far. Finally, we completed comprehensive training for center staff to support Go Premium strategy with 100% coverage.

Please turn to Page 8 for our latest performance trend. We focus on the key data of cash sales, as it provides latest status of our business and useful visibility of future growth. In the fiscal Q1, i.e., September to November 2020, we still had some COVID impact in a few cities for OneSmart VIP business and for overall Young Children Education business. Heading into fiscal Q2, our company-wide cash sales year-over-year growth has continued to trend up, recording 14%, 23% and 37% in December 2020, January and mid-February 2021, respectively. The key drivers for such accelerated growth include: first, demand, as students are back to normal study schedule in China to boost post-pandemic recovery for off-line centers; second, Go Premium strategy and marketing efforts have built up customer satisfaction and brand awareness; and third, the successful launch of VIP premium products.

As typically the new sales takes 1 to 2 quarters to translate into class consumption, i.e. revenue recognition in our business, the momentum has not yet been reflected in our current quarter P&L, but indicates solid and visible future revenue growth. Go Premium strategy is increasing the unit price substantially, reflecting a much higher unit economics and business model for us.

On Page 9, in the fiscal year 2021 to date, i.e., September 2020 to January 2021, the unit price of new purchase was RMB 44,000 per student on average basis, representing 73% year-over-year increase from the same period of last year, or 58% increase for the full year of fiscal 2020. Typically, a large number of students will renew their courses towards the end of their first signed learning packages. We thus expect much higher lifetime value and unit economics going forward.

The improved economics supports our ongoing investments in teachers, learning centers and brand, creating a robust premium model. Our historical data suggests a typical low season for revenue recognition in the fiscal Q1 due to less intensive study and exam schedules in September to November in the public schools of China. As such, the cash sales momentum recorded in recent months has not yet reflected in fiscal Q1 quarterly earnings.

As shown on Page 10, usually quarterly revenue size for fiscal Q3 and fiscal Q4 almost double that of fiscal Q1. As a result, our margins are softer in fiscal Q1 due to other fixed costs and expenses as well as some upfront strategic spendings that are less related to the revenue distribution pattern here.

Next, I will report updates for each of our 3 core businesses. Let's first start with our core OneSmart VIP business on Page 12. On a like-for-like basis for 1-on-1 program, excluding 1-on-3 program, the average monthly student enrollments were in line with the same period of the prior year. Company has strategically discontinued the selling of 1-on-3 tutoring products since Q2 FY '20 to focus on the more premium 1-on-1 product, including the launch of Elite VIP products. Cash sales grew by 10% year-over-year for 1-on-1 program. In the fiscal Q2 today, our cash sales improved by 29% year-over-year for OneSmart VIP business or 27% year-over-year for OneSmart VIP excluding 1-on-3 program. This is a combined result of resumed demand for highly effective 1-on-1 tutoring products as exams normalized here in China; and two, higher customer satisfaction due to premium initiatives on products and centers; and three, our proactive marketing campaign to build brand to attract new customers.

Moving on to Page 13. To support the launch of Elite VIP program, we continue to invest in teachers' profiles and teaching services. The VIP teachers are certified by OneSmart's star teacher framework with extensive teaching experience. So far, we have certified 550 VIP teachers, in line with our cash sales and the class consumption progress.

Elite VIP is also distinguished, with its value and value-add premium offerings, which is a product upgraded in 3 dimensions to support academic achievements, including personalized school admission planning, 1-on-1 tutoring by VIP teachers and Power Learning theory.

Our center expansion and upgrade is well on track, as shown Page 14. By the end of January 2021, we have renovated and upgraded 83% for all of our learning centers in China. In addition, we opened 12 flagship VIP learning centers in operation in top cities, including 5 upgraded centers and 7 newly opened centers to provide a premium learning center experience. In the fiscal Q1, Elite VIP program accounted for 12% of the cash sales from the OneSmart VIP business.

Page 15 summarizes how our marketing campaign works to reach target customers and convert to sales. To build our acquisition advantages around learning centers and its local reach, we have enhanced premium brand building through upgraded offline presence and high-profile PR events. In addition, we have also upgraded local marketing activities with more effective targeting by leveraging our center coverage and the local school knowledge. While we plan to increase marketing spending to support our Go Premium strategy, during fiscal Q1 we kept market expense ratio at 8% of cash sales, which is in line with the pre-pandemic Q1 FY '19 level, thanks to our enhanced marketing approach and the robust cash sales generated.

While new student acquisition is critical to our growth, existing student base contributes majority of cash sales based on our historical results. During fiscal Q1, renewals and referrals contributed 67.4% of the total cash sales, up from 63.6% Q1 last year, primarily due to enhanced customer satisfaction, driven by our premium initiatives.

Let's turn to Page 16 and 17 for upgrades of our Young Children Education businesses. During fiscal Q1, this business has been more impacted by COVID, which has seen a much slower recovery compared to OneSmart VIP business. Monthly average enrollment turned a slightly year-over-year increase of 1.3%, and the cash sales continued to recover sequentially, up 38% from the prior quarter. During the quarter 1, the average unit price of new purchase improved by 14% and 29% year-over-year for HappyMath and FasTrack English, respectively. Cash sales for these premium products picked up quickly and accounted for 9% of total cash sales for total Young Children Education business in the fiscal Q1.

The standard of safety and the cleanliness is also upgraded in our HappyMath and the FasTrack English learning centers to encourage a high attendance rate among Young Children students. As of the end of fiscal Q1 2021, HappyMath achieved a retention rate of 80%, as high as pre-COVID level.

Moving on to OneSmart Online on Page 18. As explained in previous earnings calls, we are committed to a healthy growth path for OneSmart Online by sticking to a positive cash flow and avoiding burning cash for scale. It charges the same hourly rate of as our off-line programs, but provides value-add in terms of convenience and complementary services through the OMO business model. We constantly improved online functionalities to enhance customer experience, upgraded live online classrooms to meet the requirements of multiple class formats and enhance the interactive teaching results and visual effects. Our teachers are well trained to adapt to the both online and off-line teaching environment. In the fiscal Q1 of 2021, online business contributed 3% in total cash sales and 4% in total net revenues.

Lastly, but importantly, we continued to strengthen our focus in the core business. As shown on Page 19, we are pleased to announce the successful re-org and forming of a separate independent platform by combining several previously invested small class K-12 tutoring businesses, including Tus-Juren and Tianjin Huaying, to better focus on the core 1-on-1 business. We believe in the tremendous potential in the premium 1-on-1 segment in the top 20 cities based on our in-depth understanding was of customer needs and trends. Such focus lays a solid foundation for both scale and profitability for the next few years.

Before Ida walks you through our financials in more details, I would like to recap and comment on our anticipated revenue growth and margin expansion. Our fiscal Q1 P&L results have not yet reflected recent strong cash sales momentum and post-COVID recovery, as it typically takes 1 to 2 quarters for sales to translate into class consumptions, i.e., revenue recognition, in our business. In addition the fiscal Q1 is a typical low season for class consumption due to the less intensive study and exam schedules in China. Historically, our revenue in fiscal Q3 and fiscal Q4 doubled that of fiscal Q1. As a result, we observed temporary margin pressure in fiscal Q1.

In addition, the margin is affected by those upfront investments in teachers learning centers and marketing for the Go Premium strategy. With the strong cash sales trend we just reported and significant higher new sales ASP, we are optimistic about a FY '21 top line performance, particularly the fiscal Q3 and fiscal Q4, the peak study season. We expect strong revenue growth and margin expansion in the second half FY '21.

With that, I turn the call over to Ida. Ida, please.

[Ida Yu, executive]

Thank you, Greg. Before we go through the key financial results, let's review the performance of our OneSmart VIP centers ramp-up, as shown on Page 24. The performance has been solid and has a consistent trend as before. For VIP centers in Shanghai that have been operating for over 2 years, the center level operating margins turned 18% and high as 20% on the third year. For VIP learning centers in our top 10 cities outside Shanghai, we have achieved a center level operating margin of 13% for those that have been operating for over 2 years and 19% on the third year.

While taking a view from city level, Shanghai has a higher percentage of matured centers with normalized operating margin. The VIP learning centers in the other top 10 cities are maturing after years operations and enhanced brand awareness following what we have achieved in Shanghai for more than 10 years. For the past 12 months, the total operating margin for VIP centers in Shanghai was 31% and 15% in the top 10 cities outside of Shanghai. We are optimistic that the solid growth in our existing key cities will optimize our group level profit growth and the margin expansion as we take a more focused growth strategy.

In the first quarter of fiscal 2021, cash sales totaled RMB 962 million, decreasing by 13.3% year-over-year, but increasing by 20.6% from the fiscal Q1 of 2019. Excluding the impact of 1-on-3 programs, cash sales increased by 2.9% year-over-year or increased by 40.9% from the fiscal Q1 of 2019. Net revenues were RMB 685 million, at the high end of guidance, decreasing by 14.1% year-over-year, but increasing by 5.8% from the fiscal Q1 of 2019. The year-over-year decrease was mainly attributable to a drop in consumed class units as a result of the COVID-19 impact to students' study and exam schedules, partially offset by an increase in our ASP for class units consumed. If excluding the impact of 1-on-3 program, net revenues decreased by 1.9% year-over-year, but increased by 18.3% from the fiscal Q1 of 2019.

Cost of revenues decreased by 7.8% year-over-year to RMB 477 million. The year-over-year decrease was mainly attributable to lower staff costs relating to a decline in class units consumed, partially offset by the slight increases in rental costs and the depreciation and amortization costs relating to flagship VIP learning centers opening and upgrades in the key cities. In the fiscal Q1, gross profit was RMB 208 million, with gross margin of 30.7% -- 30.4%. The year-over-year decline in profit and margin was mainly due to one-off revenue drop caused by the impact of COVID-19. In addition, fiscal Q1 is traditionally a low season quarter for our business. Non-GAAP selling and marketing expenses, which excludes share-based compensation expenses, were RMB 171 million, accounting for 25% of net revenues or 17.8% of cash sales, a decrease of 12.3% from RMB 195 million, accounting for 24.4% of net revenue or 17.6% of cash sales during the same period last year. The slight year-over-year increase in ratio was primarily due to more efficient selling spending, partially offset by proactive branding and local marketing activities to reach target families in the execution of Go Premium strategy.

General and administrative expenses increased by 0.2% year-over-year to RMB 201 million. Non-GAAP G&A expenses, which excludes share-based compensation, were RMB 166 million, accounting for 24.3% of net revenues, a decrease of 3.7% from RMB 173 million, accounting for 21.7% of net revenues during the same period last year. The year-over-year increase in ratio was primarily due to the lower revenue in the fiscal Q1 as a result of seasonality.

Let me now move on to cover some other key financial points for the first fiscal quarter of 2021. Capital expenditures for Q1 was RMB 41 million, a year-over-year decrease of 45% from RMB 90 million in the same period last year. Capital expenditures accounted for 6% of net revenues in Q1, representing a year-over-year decrease of 530 basis points from 11.3% in the same period last year. The decrease was mainly due to more selective expansion and upgrades in the key cities.

OneSmart prepayments from customers balance, which represents cash collected from enrolled students for courses and recognized proportionally as the training sessions are delivered, reached all-time record high levels of RMB 2.75 billion at the end of fiscal Q1 2021, representing a sequential increase of 8.3% from the end of fiscal Q4 2020 and a year-over-year increase of 13.5% from the end of fiscal Q1 last year.

As of November 30, 2020, the company had cash and cash equivalents, restricted cash and short-term investments of RMB 1.45 billion. Based on the latest estimate, we expect to generate net revenues of RMB 850 million to RMB 950 million for the fiscal Q2 of 2021, equivalent to 24% to 39% increase from the fiscal Q1 of 2021. We expect our full year revenue to reach above fiscal 2019 levels. However, this outlook represents OneSmart's current view, which is subject to change.

This concludes our prepared remarks. I will now turn the call over to the operator and open for Q&A. Operator, we are ready to take questions.

[Operator]

[Operator Instructions] Today's first question comes from Felix Liu with UBS.

[Felix Liu, analyst]

So first, we're very glad to see the revenue return to growth in your next quarter guidance. So I understand this is typically weak season. But could you maybe share us some color on the margin? Do we still expect to decline year-on-year or improve year-on-year for Q1 margin? And also, you mentioned that you expect the full year revenue to return to pre-COVID level. So what about margin? Is margin -- can margin return to pre-COVID level as well?

My second question is on capacity. I noticed that the number of VIP learning centers declined a little bit Q-on-Q. So could you maybe share more color about the capacity expansion plan going forward?

My third question is on balance sheet. I noticed that the cash and short-term investment has continued to come down, now at CNY 1.4 billion, and you're currently sitting at a CNY 2.5 billion current liability, excluding prepayments from customers. So may I understand -- could you help us understand the liquidity situation of your balance sheet? And do you see any risk or need to raise more funding?

[Honggang Zuo, executive]

Thank you, Felix. So thanks for the 3 questions. Let me take them one by one. The first question is regarding the forward view on margin and revenue recovery. So let me start with the overall comments that we have provided and also the cash sales trends, the indicated data points that we've provided, which provide a pretty strong view of visibility for us to see the recovery of our business. So as we mentioned, the multiple reasons that -- behind the pretty strong top line growth for the second half, which supported by the cash sales trend, but most importantly as a result of our Go Premium strategy, when we improve the overall customer experience and our brand images, which helped really for the retention of existing customers, referrals, and also new acquisitions.

So with that, and in addition, we are able to increase the price for not only the Elite VIP product, but also for the current -- the regular VIP products. So as we improve those experience, we're able to charge a premium on those products. So we will have -- we have shown you the strong ASP increase year-over-year as well. So this will support the revenue growth in the full year. As we mentioned, our guidance is -- for the full year is that we will have revenue be more than the pre-COVID FY '19 level, which is roughly RMB 4 billion. As you know, last year, FY '20, we had a revenue of RMB 3.4 billion only. So this represents a pretty strong sequential increase as well as a recovery trend. In terms of margin, as we explained in detail that Q1 is a thin and low season for us, so -- but also importantly, we had to strategically invest in our business for the -- with the long-term growth prospects. So as you noticed, we revamped our learning centers, we invest in our teacher credentials, we spend money on brand building, we improved the products dramatically. So all that will have a short-term impact on margin, but as I mentioned, as the top line growth comes back, the margin will recover. So it will be hard to predict the exact margin level at this point, but we believe in the second half the margin expansion will be quite notable. Your second question regarding capacity. You noticed a few -- the drop on learning centers. If you compare to Q4, the numbers of -- we had a total of 480 learning centers by this quarter. So yes, our expansion plan is the one we mentioned. We will stick to about 10% expansion rate for the VIP business, where we have a very disciplined and a modest expansion plan for the Young Children Education business, as that business still will take time to recover from the COVID. So for the VIP business, the 10% level is the full year. But for Q1, as you noticed, is from September to November, some of our cities are still being impacted by the COVID. So we actually will add centers mostly in Q2, which we'll report to you in the next quarter. As we also mentioned that some of our new openings will be flagship centers, which you have visited before. And lastly, we did -- as we previously communicated, during the COVID period, we looked at our existing portfolio, looked at performance in [ past in ] locations, most importantly, whether those learning centers still fit in our Go Premium strategy. So we were able to close down about 4 cities for the VIP business, which represent -- which has about 14, 15 learning centers. So we did close some of those strategically to -- for our Go Premium strategy. So our focus, again, for the full year will be 10% expansion rate, which is pretty healthy, but more importantly, will be good adjustments to our learning center portfolio for the Go Premium strategy. Your last question regarding balance sheet, that's correct. You noticed our cash balance is CNY 1.45 billion, which is very normal if you move from Q4. Q4 basically is the summer season, peak season to our Q1, which is a low season, so a slight decrease from Q4, but a reasonable pretty strong level at CNY 1.45 billion. The liability, I have to clarify, our total debt, including onshore bank loans, offshore bank loans, offshore CP that we issued, is about RMB 2.15 billion. So we are in a slight net debt position, which -- but we are very comfortable with. I think we don't have any concern on liquidity for the simple fact that the demand for our product is very strong as evidenced by the cash sales trend.

As you know, the Tutoring business has a pretty good and strong cash profile or pattern, which means you can collect tuition upfront, and you deliver those classes as it will take -- consume the cash. So at the moment, with the CNY 1.45 billion cash and cash equivalents at hand and with the current strong cash sales trend, we're pretty comfortable. And in fact, we are planning to pay down some of the debt over the next few quarters, as you probably also -- already noticed that our total debt will -- has come down about RMB 180 million in this past Q1. So we'll probably continue to do that. And the reason we had such a high level of debt, as we discussed earlier, is that during the past year we had to -- we tried to build up our safety cushion by raise a little bit debt in the events of the COVID-19 because back then, nobody knows how the situation will unfold and more cash reserve will be good for the business. As the situation become under control and our cash flow has been robust, we'll certainly start to reduce the debt positions. So with that, I hopefully answered your questions.

[Operator]

Our next question today comes from Sheng Zhong with Morgan Stanley.

[Sheng Zhong, analyst]

A few questions from me. First one is I want to follow up your Q2 guidance. So what the guidance breaks down to business lines, especially your VIP business growth outlook in Q2?

And secondly, thanks for the update on your VIP Elite program. And can you share more -- can you share some more color on your Elite program student profile?

And the last one, I want to understand more about your enrollment recovery pace. So normally, in the past, I think Q1 for VIP business, the Q1's enrollment is normally similar with Q4 in terms of average student enrollment monthly. So in this quarter, Q1, we see the similar trend. So can you give some breakdown on the Elite program enrollment number and normal VIP and help us to understand what your -- what the recovery trend you will see in coming quarters?

[Honggang Zuo, executive]

Got it. Thank you, Sheng. Appreciate your questions. So the first question regarding Q2 guidance. So we've provided guidance of RMB 850 million to RMB 950 million for the fiscal Q2 of 2021, basically between November and February. That represents pretty strong sequential increase from the current Q1, which had revenue of RMB -- only RMB 485 million. So that represents a 24% to 29% increase. Also -- we also noticed that the Q2 last year, we had a revenue of roughly CNY 885 million. So that also represents a pretty good picture of growth from year-over-year perspective. So we provided guidance based on our current performance [ status ] and, most importantly, the strong demand we observed from the markets. In terms of breakdown by business lines, yes, I -- as we explained in the PowerPoint presentations, the strong growth will be coming from the VIP business rather than the other 2. So we would expect very strong sequential quarter-over-quarter growth of the VIP business in Q2. So roughly we can provide about 80% of the revenue guidance will be from the VIP. That's up from the 71% in the current Q1 earnings. And also the -- for the online, it will be about 3%, which is pretty quite predictable. So the remainder will be the Young Children Education business. We said, for the full year basis, the guidance will be -- the revenue will go beyond the pre-COVID level. So as you noticed, there are 2, a little bit of uncertainty here. One is the COVID recovery and the resurgence situation, although we have pretty strong data points showing the growth. And two, is really our repositioning or revamping our business model to -- for the Go Premium strategies. The initial results are obviously very encouraging, as we explained to you. So for these 2 reasons, we may not provide, as usually in the past few years, the annual revenue guidance, but we're very confident the number will be -- will be above the CNY 4 billion revenue of FY '19, the pre-COVID level. So this is the first question. The second question is regarding the Elite program profile of our students. So that's a great question. We actually spend quite some time to do consumer study. So we, for example, we did a survey of more than 1,000 students and families before we design the products. In that survey, we found out a few things that I want to share with you. In terms of demographics, the target students for the Elite VIP programs are typically affluent middle class families in major cities of China. They have pretty decent level of income. They have -- the company -- sorry, their families highly appreciate the -- a good education. They really pay attention and spend time with their child education as well.

In terms of age, the students are typically in the middle schools here in China and the high school in China, which are late stage of the K-12 profile. Their goal obviously is to go to better schools or ideally top ranking schools, whether they are the local high -- top-ranking high schools or the top-ranking universities here in China. So they're looking for, one, at the total solutions, one-stop shop in terms of not only for score-improving tutoring services, but also the learning ability. We call this Power Learning abilities, which represent the interest, the capability of learning, but also, most importantly, is the school admission planning packages. As you noticed, the China currently is going through some school admission reforms, and the reform provides some uncertainties and questions and [ anxiety ] even for the families. So to that demand, we provide a comprehensive Elite VIP programs, which address their school admission planning needs. So in the survey, we also understand lots of families -- the question is not that how cheap the product, how -- their attention is not really on the cost side, but also -- but more importantly, they focus on whether you can provide a better teacher, your historical results of score improvements, your results of school admissions, your service quality, your products, your learning center environments, all that. So after all these studies, we designed our current Elite VIP program, which we are very proud to present here, but also very happy to share with you the initial good result.

I will emphasize to you that, as you probably also learned from the macro trend of China, so China has been undergoing consumption upgrades in many consumer sectors or service sectors. It's the same in education. If you can provide such an attractive elite and premium product, we believe the demand will be tremendous. As we explained in the previous earnings call, OneSmart, although the market leader in the premium education in China, we only had less than 3% market share of the premium sectors. So we are very optimistic for the growth potentials if we continue to nurture and develop this new product. But lastly, I want to clarify that although Elite VIP program is very important to us, but majority of our VIP business, still the original VIP -- regular VIP products, we did also improve and revamp the products in terms of offerings and teacher profile learning center environments. So as a result, we were able to also increase price for the other regular VIP products which, for Q1, the overall ASP of sales for the VIP business has increased tremendously, roughly 24% year-over-year. So that's pretty strong. As we explained, as we having the new students coming in for class consumption, that ASP increase will turn into revenue ASP increase, which will help the margin point that I mentioned earlier. This is your second question regarding the Elite program profile.

Your last question is regarding the monthly average enrollments. You were right that we have some decrease from Q1. So let me remind the numbers. For the VIP business, Q1 FY '21 total monthly average enrollment was 76,000. The Q4 was 96,000, as you mentioned. And Q1 FY '20, last year, was 96,000 as well. The reason for the decrease, I want to clarify with everyone, is really -- the main reason is really the -- our strategic position to cease the offering of 1-on-3. For example, for the 76,000 of Q1, we only had about 8,000 1-on-3 students remained. As you know, we stopped selling the products in Q2 FY '20. So as the quarter runs by, the existing 1-on-3 student will gradually run off. But for Q4, the 96,000, I mentioned, they had 21,000 1-on-3 students. For the 96,000 for Q1 last year, we had 28,000 1-on-3 students. So that explains the major gap of decrease of the average enrollment.

I think there are some 2 other reasons behind the decrease. One, normally as we move from Q4, the summer season, to Q1, the low season, we have a slight decrease of student base, which is very normal. And the other reason is really the COVID impact. We mentioned that, during the COVID period from February to June, July, we had a lost window because -- a lost window of new students acquisitions because we had the learning center shutdown across the country. So we are gradually catching up. As you see, the cash sales numbers have been growing pretty strongly. So -- but it will take a little bit time for our new students coming in to take classes. But let me -- the other two, I think the mitigants for our students enrollment is really the launch of Elite VIP product. As we explained earlier, we had a strong sales and market feedback on the Elite VIP product. So as this strategic product comes in, we will gradually replace the 1-on-3 products, which is really our strategic purpose here. Lastly, but most importantly, the ASP increase. So although we had a little bit decrease on enrollment numbers in Q1, but our ASP has been resumed growth, right? For the VIP business, you notice about 10% increase currently. And I mentioned that 24% ASP increase for the cash sales, which will gradually turn into revenue ASP increase in a few quarters. So that will mitigate the numbers as well. Yes, with that I...

[Operator]

[Operator Instructions] Today's next question comes from Joy Wei with 86Research.

[Joy Wei, analyst]

I have a question regarding the long-term margins. So we understand that the Go Premium strategy will help improve the lifetime operating margin. But do you have any quantitative color, considering the price increase and also teacher cost inflation, et cetera, or these combined? And how and when will that be revealed on the company's financials in the following period?

[Honggang Zuo, executive]

Yes. Thank you for the question. I think we have talked a lot about margin today. We mentioned the top line will recover strong growth and then the ASP increase will gradually reflect in our revenue in the 20-ish percentage growth year-over-year. We talked about our new launch of the Elite VIP product, which we explained earlier in last earnings call. It brings in better profitability profiles. But I want to -- it will be hard to predict the timing of by when the margin will return to what level. But in general, two points I want to share with you. Number one, given all these positive developments, we mentioned Elite VIP product has a better margin profile; we also mentioned that the ASP increases resetting of unit economics, which we have demonstrated in the table on the PowerPoint presentation. So that's very clear that gradually we'll return back to the profitability that we had before the -- before COVID-19 and also before the period when we had a rapid growth.

But also, very important, the other driver is the ramp-up of our learning centers. We kept providing the ramp-up record in details for the top 11 cities, Shanghai and non-Shanghai, and therefore the vintages of learning centers. Those ramp-up are generally on track, right? So as you -- if you follow our performance the last 2 years, you will notice that we had a period of strategically accelerating capacity expansion in FY '18, FY '19. So this learning center was -- in their year 1 and year 2 performance, normally they don't have a good profitability profile. But as we roll over, as they ramp-up, which we have proven on the PowerPoint, that will trend into a strong double-digit operating margin profile. And lastly to notice that we are very clear: we want to focus on top 20 cities for scale, for a better economy of scales. So this will also help us. As I mentioned in the earnings call earlier that we have closed down 4 cities in the remote area of China, so that we can more focus on the most developed top 20 cities. This focus will help the margin as well. So with that, it will be hard to predict when, but we're very confident and optimistic about the margin recovery profiles. You will notice that, as we mentioned, in -- even in the coming H2 of FY '21. Thank you for the question again.

[Operator]

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Ms. Yu for final remarks.

[Ida Yu, executive]

Thank you, operator. In closing, on behalf of the entire management team, we'd 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. Now you may disconnect. Thank you.

[Honggang Zuo, executive]

Thank you.