China Online Education Groupfilecache.investorroom.com/mr5ir_51talk/184...China K-12 Online English...

China Online Education Group

Management Presentation

NYSE | COE

April 2020

Important Information

1

This presentation has been prepared by China Online Education Group (the “Company”) solely for informational purposes

and does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Company in

any jurisdiction or an inducement to enter into investment activity, nor may it or any part of it form the basis of or be relied on

in connection with any contract or commitment whatsoever.

This presentation does not contain all relevant information relating to the Company or its securities, particularly with respect

to the risks and special considerations involved with an investment in the securities of the Company. No part of this

presentation shall form the basis of or be relied upon in connection with any contract or commitment whatsoever.

This document has been prepared by the Company solely for use at this presentation. The information contained in this

presentation has not been independently verified. No representation, warranty or undertaking, express or implied, is made

as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the

opinions contained herein. None of the Company or any of its affiliates, directors, officers, advisors or representatives will

be liable (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or

otherwise arising from or in connection with the presentation.

This presentation contains statements that constitute forward-looking statements within the meaning of Section 27A of the

Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These

statements include descriptions regarding the intent, belief or current expectations of the Company or its officers with

respect to the consolidated results of operations and financial condition of the Company, which can be identified by

terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident” and similar

statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties,

and actual results may differ from those in the forward-looking statements as a result of various factors and assumptions.

The Company or any of its affiliates, directors, officers, advisors or representatives has no obligation and does not

undertake to revise forward-looking statements to reflect future events or circumstances.

I. Company Overview

3

We Make Quality Education Accessible and Affordable

We are a Leading Online English Learning Platform

Flexible working hours and locations

Competitive compensation

Sense of personal achievement

Highly affordable

Access to highly effective foreign teachers

Anytime, anywhere

Engaging learning experience tailored for every need

Our Value Propositions Our Value Propositions

Notes:1. Active students in 4Q 2019. “Active students” for a specified period refers to students who booked at least one paid lesson, excluding those students who only attended paid live broadcasting lessons or trial lessons. A lesson is considered “booked” when it

is taken or when the student to such lesson is confirmed absent2. As of December 31, 2019

Students Teachers

257K+Active Students (1)

23K+Teachers (2)

INTERACTIVE LIVE STREAMING CURRICULUM

1X1 AND SMALL-GROUP CLASSINTERACTION WITH

FOREIGN TEACHERSCOMPREHENSIVE TEST AND

ASSESSMENT

Branded

Programs

Target Student

DemographicFormat Teachers Pricing

As % of Total

Revenue in

4Q19

51Talk

K-12

Mass Market1x1 Filipino

~RMB40/

25mins (1)

81%

(+62.8% YoY

in Q4 19)

Hawo K-12 Small Class

Foreign

+

Chinese

~RMB60/

45mins7%

Worry-Free English (2) Adult 1x1 Filipino~RMB40/

25mins10%

4

What We Offer

Co

re O

ffe

rin

gC

om

ple

me

nta

ry B

ran

ds

Note:1. ~RMB30/25mins at IPO2. WuYouYingYu, represents an adult English learning program

Updates Since IPO

5

Key Financial and Operating Metrics 2016

(IPO Year)

2019

(Latest Fiscal Year)CAGR (2016 – 2019)

Gross Billings (US$MM) 125 299 33.7%

K-12 Contribution (1) (%) 55% 94% +39pp

Net Revenue (US$MM) 60 212 52.2%

Non-GAAP Net Loss (2) (US$MM) (67) (12) -

Number of Active Students in 4Q (3) (thousands) 116 257 30.6%

Number of Available Teachers (4) (thousands) 8 23 44.4%

• Since IPO, we have expanded our course offerings and increased our penetration into K-12 English learning in non-tier-one cities

o Released courses tailored to K-12 students

o Integrating highly interactive and gamified functions

o Concentration of active students residing in tier-one cities has decreased from 50.5% in 2016 to 32.4% in 2019

• We have been revamping our brand to better capture the K-12 student market

o Refined our core 51Talk brand to focus on K-12 1x1 mass market

o Introduced small class offerings under Hawo brand and adult English courses under WuYouYingYu brand

Note:1. For 4Q16 and 4Q19. K-12 contribution is calculated as gross billings contributed by K-12 students divided by total gross billings during the period2. Adjusted for share-based compensation expenses3. “Active students” for a specified period refers to students who booked at least one paid lesson, excluding those students who only attended paid live broadcasting lessons or trial lessons. A lesson is considered “booked” when it is taken or when the student

to such lesson is confirmed absent 4. As of December 31 of respective year

(132)

(62)

(28)

(2)

5

4Q18 1Q19 2Q19 3Q19 4Q19

6

Achieved Profitability in 4Q19 Driven by Healthy Unit Economics

Driven by Strong Unit Economics in 4Q19

298 320 353 409 397

81.4%Retention Rate (2)

Notes:1. Adjusted for share-based compensation expenses2. Weighted average retention rate calculated as cohort new paying students booking lessons on the platform one year after their initial purchase, weighted by number of new paying students per quarter3. For 4Q19. Referral rate of K-12 students for a certain period refers to the percentage of new paying K-12 students in such period who indicated to us that they were referred by other people to our platform

First Time Achieving Non-GAAP Net Income Profitability in 4Q19 (1)

(44.4%) (19.5%) (7.8%) (0.6%) 1.1%

60.2%K-12 Referral Rate (3)

72.1%Gross Margin in 4Q19

Net Revenue(RMB million)

Net Margin

Non-GAAP: Net Income / (Loss)(RMB million)

Positive Operating Cash Flow and Healthy Liquidity Position

7

2955

30

398

2016 2017 2018 2019

Net Cash from Operating Activities

(RMB million)

Cash Balance (1)

(RMB million, as of December 31)

647 623

712

1,053

2016 2017 2018 2019

Note:1. Cash includes cash and cash equivalents, time deposit and short-term investments

Cash Flow Positive since 2016 Sufficient Cash Balance

Operational Flexibility

8

Gross Profit vs. Operating Expenses

Notes:1. For 4Q19, charts height are for illustrative purpose. Non-GAAP operating expenses adjusted for share-based compensation

72.1%Gross Margin

50.8%

11.7%

9.3%Product Development Expenses

General and Administrative Expenses

Sales and Marketing Expenses

72.1%Gross Margin

34.6%

8.0%

6.3%Product Development Expenses

General and Administrative Expenses

Sales and Marketing Expenses

23.2%

0.5%

Gross Margin vs. Non-GAAP Operating Expenses as % of Net Revenue (1)

Gross Margin vs. Non-GAAP Operating Expenses as % of Gross Billings (1)

9

COVID-19 Impact

Increasing number of lessons completed to boost top line on a quarter-over-quarter

basis

Increasing demands and trial lesson requests leading to increased student

registrations on a quarter-over-quarter basis

Manpower limitations due to travel and working restrictions capped our ability to addressing

increasing demand

Our opinion: more widespread and longer-lasting awareness of the merits of

online education

10

COE at a Glance

60.2%K-12 Referral Rate (7)

Profitablein 4Q19

US$100Bn+Total Addressable Market (1)

CAGR of ~30%

from 2017 to 2022

US$299MMGross Billings (5)

257K+Active Students (2)

23K+Teachers (3)

Notes:1. Frost & Sullivan. China K-12 after-school education market size is expected to grow from RMB 200 billion in 2017 to RMB 740 billion in 2022, representing a CAGR of ~30%. After-school education refers to all educational courses taken outside of school. Tier-

one cities refer to Beijing, Shanghai, Guangzhou and Shenzhen. Non-tier-one cities refer to cities in China2. Active students in 4Q19. “Active students” for a specified period refers to students who booked at least one paid lesson, excluding those students who only attended paid live broadcasting lessons or trial lessons. A lesson is considered “booked” when it is taken

or when the student to such lesson is confirmed absent3. As of December 31, 20194. For 4Q19. K-12 contribution is calculated as gross billings contributed by K-12 students divided by total gross billings of the period 5. Gross billings in 2019. Gross billings for a specific period refer to the total amount of cash received for the sale of course packages and services in such period, net of the total amount of refunds in such period6. Weighted average retention rate, cohort new paying students booking lessons on the platform one year after their initial purchase (%), weighted by number of new paying students per quarter 7. K-12 referral rate in 4Q19. Referral rate of K-12 students for a certain period refers to the percentage of new paying K-12 students in such period who indicated to us that they were referred by other people to our platform

94.1%Gross Billings Contributed by

K-12 Students (4)

81.4%Retention Rate (6)

II. Business Highlights

12

What Sets Us Apart

Sustainable Growth Strategy

Effective Teacher Operation

Best-in-class Curriculum Offerings

Deep Data Insights and Strong Technological Capabilities

Balanced Financial and Business Model

13

Growth Strategies

Sustainable Growth Strategy Effective Teacher OperationBest-in-class Curriculum

Offering

Deep Data Insights and Strong

Technological Capabilities

Balanced Financial and

Business Model

Notes:1. According to survey conducted by Chinese Academy of Social Sciences (CASS) on China K-12 education market in March 2020

Leverage our strong brand to affect more students and

teachers

Expand our curriculum offerings and enhance

teaching methodologies

Invest in technology and data analytics to improve

operational efficiency

Improve our online and mobile platforms for

optimal user experience

Further penetrate into non-tier-one cities

Continue to focus on K-12 1x1 mass market

One of the most recognized brands in K-12 online education in China (1)

14

Massive Market Opportunity in China K-12 Online English Education Market

• Secular shift to online education

• Lower tier cities poised to catalyze acceleration in mass

market demand

• Decreasing fragmentation of market players

• Focus on healthy unit economics and profitable growth

over growth at any cost

• Government regulations favor established players

• Coronavirus and stay-at-home have exacerbated

positive trends

Note:1. Technavio data (2017) accessed via Statista on April 27, 2020. Assumed exchange ratio of 1USD = 7RMB


Offering




Business Model

168

525

2017 2022E

China English Language Training Market Size (1)

(RMB billion)

Key Drivers for Growth of China K-12 Online English Education Market

4Q18

4Q19

72.7%

86.2%

6.9%

6.9%

Increasing Focus on 1x1 K-12 Mass Market (1)

15

Focused on 1x1 K-12 Mass Market


Offering




Business Model

1x1 K-12 Mass Market 1x1 Others K-12 Small Class

Note:1. The percentage represents our gross billing mix

86.2%

6.9%

6.9%

16

Massive Market Opportunity in Non-tier-one City Market

Established Brandfor Quality Education

Affordable and Attractive Product Offerings

High Referral Rate fromExisting Students

How We Win in Non-tier-one Cities

(RMB billion)

17%16%

83%

84%

2018 2023E

Tier 1 cities Non-tier 1 cities

740

200

China K-12 After-School Education Market Size (1)

Notes:1. Frost & Sullivan. China K-12 after-school education market size is expected to grow from RMB 200 billion in 2017 to RMB 740 billion in 2022, representing a CAGR of ~30%. After-school education refers to all educational courses taken outside of school. Tier-one cities refer to Beijing, Shanghai, Guangzhou and Shenzhen. Non-tier-one cities refer to cities in China


Offering




Business Model

17

Focused on Non-tier-one Cities

Note:1. Tier-one cities refer to Beijing, Shanghai, Guangzhou and Shenzhen. Non-tier-one cities refer to other cities in China

4Q18 4Q19

69.7% 74.2%


Offering




Business Model

Non-tier-one Cities as % of K-12 Mass Market 1x1 Gross Billings (1)

18

Robust and Systematic Sourcing of Foreign Teachers Ensures Best-in-class English Immersion Learning

Cebu

Quezon City

Bacolod

Baguio

Davao

Cavite

Effective Teacher Operations

• 23K+ Teachers as of Dec 31, 2019, majority of

teachers based in the Philippines

• ~450 full-time operation staff in the Philippines as of

4Q19, supporting both Filipino and global teacher

bases

Pampanga

7 Training Centers in the Philippines


Offering




Business Model

19

Effective Teacher Operations Quality Teacher Recruitment and Development

8

23

2016 2019

(in thousands)

Number of Teachers

Sourcing Screening Pre-Service Orientation

New TeacherTraining

Demonstration

Large pool of teachers from the Philippines and

Western countries

Rapid expansion in teacher space to support

burgeoning demand from strong value proposition

to students

93% of the teachers have bachelor’s degrees and 7%

have master’s degrees

High referral rate of 60% from existing teachers driving

cost efficient organic teacher acquisition

Low acceptance rate for applicants in the Philippines of

~7% reflects exacting standards for intake

Majority of the teachers have TESOL certificates (1)

Abundance of Foreign Educators Rigorous Recruitment System

Regimented Teacher Recruitment and Onboarding Process (~1 month)

Systematic and Stringent Teacher Recruitment Process

Note:1. TESOL certificate represent the certificate for Teaching English to Speakers of Other Languages


Offering




Business Model

Rigorous Training and Development Program

20

Effective Teacher Operations Quality Teacher Recruitment and Development (Cont’d)

2 star teacher training


New teacher training

7 starteacher training


6 starteacher training




Offering




Business Model

Collect student feedback on teachers after each lesson

Teachers’ ratings and reviews publicly available to students

Better-rated teachers earn higher incomes

Proprietary Curriculum Development Capabilities

21

Tailored Curriculum

Level system designed for different age groups

Level advancement exams assist students to keep track of learning progress

Developed under Content and Language Integrated Learning teaching method

Animation and gamification features

~100 dedicated course content development professionals as of Dec 31, 2019

Curriculum designed according to CEFR Standards (1)

Fully tailored curriculum for interactive lesson format

Virtuous course content development cycle based on feedback

10-level K-12 Courses Based on Proficiency

Note:1. CEFR refers to Common European Framework of Reference for Languages

Holistic Learning Solutions

Interactive and engaging lessons

Chinese teachers provide timely responses to

student inquiries

“辅”Mentoring

Unit tests and monthly study report enhance

learning outcomes

“测”Assessment

“学”Live Lessons “练” Practice

Pre- and post-class study materials

Initiation and Development

Feedback Loop

On-going Minor Updates

New Versions

Level Progression System


Offering




Business Model

22

Our Curriculum

Lesson VideoINTERACTIVE CURRICULUM

Main CoursewareCLASSIC ENGLISH JUNIOR

Focused on oral English

Usage of dialogue with

letters, phonics, grammar

and reading strategies

10 levels (Level 0 – Level 9)

designed under guidance of

CEFR

Offered in both 1x1 version

and group class version


Offering




Business Model

Technologies Support Learning Experience

Technologies Improve Business Operation

23

Ongoing Investment in Technology toOptimize Class Quality and Student Experience

Optimized streaming technologies supporting smooth learning

experience

Adaptive adjustment for audio and video quality

Scalable video coding technology

Dedicated VPN lines & optimized network topology across

countries

Facial recognition based

Virtual make-up

Background superimposition

AI based

Speech and gesture recognition

Voice speed detection

Background noise reduction

Pronunciation correction

Interactive

Prompt interactive features backed by strong technology

Animated in-class reward mechanism

Constant feedback collected to develop better curriculum

Accurate matching and behavior based suggestions

Match students with suitable teachers for optimized

learning outcome

Analyze student behavior and provide personalized

learning experience


Offering




Business Model

Technologies Enable Interactive Curriculum

24

Case Study: Magic Mirror System

Deep Insights into Student Behavior and Persona

Personalized Learning Experience

Improve Parents’ Satisfaction

Basics (e.g. locations etc.)

Study results

Learning habits (e.g. frequency of course review)

Learning experience (e.g. preferred slots, preferred teachers etc.)

Other services (e.g. study plan )

Productivity # of lessons attended per week Schedule for upcoming weeks

Student profile

Our Magic Mirror System and Illustrative Student Profile


Offering




Business Model

25

Unique Market Focus and Business Model Create Strong Network Effects

More Students

More Teachers

More Data and Feedback

More Lessons

Refined Curriculum Better Learning Results

More Personalized Learning


Offering




Business Model

26

Robust and Continued Top-line Growth Driven by K-12 Mass-Market 1x1 Business


Offering


Business Model



1x1 K-12 Mass-Market 65.9%

1x1 Others23.5%

K-12 Small Class10.6%

1x1 K-12 Mass-Market 80.6%

1x1 Others12.8%

K-12 Small Class 6.6%

(RMB million) (RMB million)

Total Gross Billings Net Revenues

355

420 425

503453

499547 582

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Gross Billings

+33.2% 4Q19 / 4Q18+15.7% 4Q19 / 4Q18

263 282303 298

320353

409 397

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Net Revenue

Increasing 1x1 K-12 Mass Market Contribution % Net Revenue

4Q18 4Q19

27

Significant Operating Leverage Industry-leading Gross Margins that Continue to Improve

Total Gross Margins

1x1 and Small Class Gross Margins

64.6% 65.7% 63.8% 62.5%67.0% 69.5% 71.6% 72.1%

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

67.0% 68.6% 66.6% 66.6% 69.0% 71.1% 72.7% 73.5%

30.7%

39.4%32.0%

27.9%

45.7%

54.5% 56.0% 52.7%

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

1x1 Small Class


Offering


Business Model



28

Significant Operating Leverage (Cont’d)Stable Operating Expenses Allow for Sustainable Growth

Operating Expenses and Operating Expenses as % of Revenue

172 163184

212186 188

215 202

5245

46

43

41 42

3837

5654

52

60

51 5046

49

280262

282

315

278 280299

288

106.7%92.9% 93.1%

105.7%86.9% 79.4% 73.3% 72.6%

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Sales and Marketing Product Development General and Administrative Operating Expenses as % of Revenue


Offering


Business Model



(RMB million) (%)

29

Significant Operating Leverage (Cont’d)Stable Operating Expenses Allow for Sustainable Growth

Sales and Marketing Expenses and Margin

(RMB million)

172163

184

212

186 188

215

203

48.3%38.9% 43.4% 42.2% 41.2% 37.8% 39.4% 34.8%

65.3%58.0% 60.8%

71.2%

58.2% 53.4% 52.6% 50.9%

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Sales and Marketing S&M as % of Gross Billings S&M as % of Net Revenues


Offering


Business Model



30

Improving Net Margin which Turned Positive in 4Q19

Non-GAAP: Net Income / (Loss) (1)

(RMB million)

(106.1)

(67.1)

(83.3)

(132.4)

(62.4)

(27.6)

(2.3)

4.5

(40.4%)

(23.8%)(27.5%)

(44.4%)

(19.5%)

(7.8%) (0.6%)

1.1%

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19

Net income / (loss) Net margin


Offering


Business Model



Note:1. Adjusted for share-based compensation expenses

What Sets Us Apart

31

Sustainable Growth Strategy

Effective Teacher Operation

Best-in-class Curriculum Offerings

Deep Data Insights and Strong Technological Capabilities

Balanced Financial and Business Model

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