ATA Creativity Global

Good day and welcome everyone to the ATA Creativity Global 2020 first quarter conference call hosted by Caroline So. My name is Greg and I'm the event manager for today's call. During the presentation, your lines will remain on listen only. If you require assistance at any time, please press star zero on your telephone and a coordinator will be happy to assist you. I would like to advise all parties that this conference is being recorded. Also, during the conference, you may ask a question. To do this, please press star 1 on your telephone. These questions will be answered at a later time during the conference. And now, I'd like to hand over to Carolyn. Please proceed.

Thank you, Greg, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global's or ACG's results for the first quarter and in March 31, 2020, is available at the IR section of the company's website at www.atai.net.cn. As part of this conference call, the company has an accompanying slide presentation available on its website. A replay of this broadcast will also be made available at ACG's website for the next 90 days. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the safe harbor provision of the Private Security Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook, and will, and include, among other things, statements regarding ACG's future growth and results of operations, ACG's strategy of becoming a leading international education service provider, ACG's plans for mergers and acquisitions generally, the benefits of the Huanqiu Limeng acquisition, ACG's ability to operate efficiently and maintain continued financial strength under unusual circumstances, ACG's growth strategy and subsequent business activities, market demand for ACG's portfolio training programs and other education services, the impact of the COVID-19 outbreak on ACG and its operations, and ACG's plan and anticipated benefits of the measures implemented in response to the COVID-19 outbreak. Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about the risks associated with investing in ACG is included in its filings within the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions, or otherwise. except as required by law. Regarding the disclaimer language, I would also like to refer you to slide two of the conference call presentation for further information. All US dollar amounts in this conference call relating to financial results for the first quarter ended March 31st, 2020 are converted from RMB using an exchange rate of 7.0808 RMB to one US dollar. The new and buying rate as of March 31st, 2020. All historical conversions are accurate as of the time reported unless otherwise noted. The company reports its financial results under US GAAP and RMB, and all percentages calculated in the presentation are based on RMB unless otherwise noted. For those of you following along with the company PowerPoint presentation, there is an overview of the company on slide three. And management will be referring back to this deck throughout the prepared remarks. In addition, we are more than happy to take investor questions through our webcast portal or via email to the company. On today's call, the company's CFO, Ms. Amy Tung, will provide a brief overview of operating and financial highlights for the first quarter of 2020, and then ACG's Chairman and CEO, Mr. Kevin Ma and President Mr. Jun Zhang will conclude the remarks with a discussion of the company's outlook as well as its long-term growth strategy before opening the floor for questions. With that, I'll turn the call over to ACG's CFO, Ms. Amy Tung.

Please go ahead, Amy. Thank you, Caroline, and welcome everyone. Good evening to those in America. We appreciate everyone's time. Our results for the first quarter of 2020 were impacted by seasonality as a result of the spring festival holiday, as well as the effects of COVID-19. When we last spoke to investors at the end of March, businesses in China were beginning to open and, while cautious, were returning to normal operations following the impact of the pandemic. We made a conscious decision to transition all Huanchu Yimeng coursework to a completely online format beginning February 1st as a measure of prioritizing the health and safety of our students, faculty, staff, and employees during these times. At that time, we provided all of our students the option to fulfill their classes online. On the portfolio training site, several students were to continue with their studies, but some decided to postpone their coursework. Our educational travel services business was also impacted during the period as the majority of tours were canceled. As a result of these headwinds, we reported an 8.7% year-over-year decrease in credit hours delivered for our portfolio training programs from approximately 28% and Xiaofeng Ma. We provide a breakdown of these credit hours and additional operating metrics on the next slide. Later in the presentation, Kevin and Jun will provide an update on current operations and where they stand. As an overview, a credit hour is the standard unit measuring educational credit for our portfolio training program and translates into roughly one hour of time committed. When it comes to enrollment headcounts, a student may be considered choice in enrollment if he or she enrolls in both portfolio training and educational travel services in any given period. Student enrollment for the period was 681, out of which 404 were enrolled in the portfolio training program. The portfolio training program consists of time-based programs and project-based programs, and we provide a breakout of the credit hours delivered during the period compared to the prior year comparable period in our presentation. Revenue is recognized proportionately per credit hour delivered. However, as the total credit hours of project-based programs are not predetermined, the progress of a project-based program which is measured by credit hours delivered compared against the total credit hours expected to be delivered is re-evaluated at each quarterly and annual financial reporting date. As in partial quarter three and quarter four of 2019, we continued to observe the same trend of students increasingly opting for the project-based program versus the time-based program. We noted on the last earnings call that Each program has its benefits depending on the particular student's needs. A student that already possesses some basic skills and wishes to only complete a portfolio will tend to favor the project-based program, as it appears to be the less expensive option for completing a portfolio with a defined course. Meanwhile, the time-based program caters to students that may want additional guidance and opportunity to work with teachers for some basic foundation skills before beginning on their portfolio. With that, let's move to financials for the quarter. I wanted to remind everyone that for the results shown for this period, we have applied acquisition accounting and made purchase price allocation adjustments, PPA, to various assets acquired and liabilities assumed from the Huantu Yimeng acquisition. As a result, certain line items will include adjustments from amortization of the difference between the carrying value in Huantu Yimeng's book and the fair value assets from the PPA process applied to the Huantu Yimeng acquisition. I will highlight where we saw some impact on our financials due to this PPA adjustment for the 2021st quarter. Total net revenues for the first quarter of 2020 increased to 32.7 million RMB compared to 1.6 million RMB in the first quarter of 2019 as a result of revenue contributions from HAN to Yima, which consisted primarily of revenues from portfolio training programs. Net revenues for this quarter include a PPA adjustment decrease of 6 million RMB. Gross margin was 35.8% during the 2020 first quarter compared to gross margin of 25.3% in the prior year period when the company did not have substantial operations. Excluding the PPA adjustment to net revenues, gross margin for the 2020 first quarter would have been 45.8%. Net loss attributable to ACG was 20.5 million RMB for the period compared to a net loss of 12.9 million RMB in the prior year period as a result of increased operating expenses incurred related to the day-to-day operations of the quantum human business. Finally, we continued to be in a solid financial position with 21.6 million U.S. in cash and cash equivalents on the balance sheet. Working capital deficits was 13.3 million U.S. and total shareholders' equity was US$40 million at March 31, 2020, compared to working capital deficits of US$11.7 million and shareholders' equity of US$43.9 million respectively at December 31, 2019. With that, I would now like to turn it over to Kevin, who will expand upon our outlook and growth strategy. Kevin.