ATA Creativity Global

Greetings and welcome to the ATA Creativity Global Second Quarter 2021 Financial Results Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Caroline Song. Thank you, Caroline. You may begin.

Thank you, Operator, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global, or ACG's, results for the second quarter ended June 30, 2021 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 on 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 contain certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities 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 plans for mergers and acquisitions generally, ACG's growth strategy, anticipated growth prospects, and subsequent business activities, market demand for ACG's portfolio training programs and other education services, the impact of the COVID-19 pandemic and the guidelines on ACG and its operations, and ACG's plan and anticipated benefits of the measures implemented in response to the COVID-19 pandemic. 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 with 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 U.S. dollar amounts in this conference call relating to financial results for second quarter ended June 30th, 2021 are converted from RMB using exchange rate of 6.4566 RMB to one U.S. dollar. The noon buying rate as of June 30th, 2021. All historical conversions are accurate as of the time reported unless otherwise noted. The company reports its financial results under U.S. 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. In addition, we are more than happy to take investor questions during today's Q&A session or via email to the company. On today's call, the company's CFO, Ms. Amy Tung, will provide a brief overview of operating financial highlights for the second quarter and first half of 2021. Chairman and CEO Mr. Kevin Ma and President Mr. Jun Zhang will follow with an update on the company's outlook and 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 Kao. Please go ahead, Amy.

Go ahead, Amy. Thank you, Caroline, and welcome everyone. Good evening to those in America. We appreciate everyone's time. We are pleased to have continued our growth into the year, reporting a 36.1% increase in total student enrollment to 1,051 students in the second quarter of the year. We believe the momentum we have seen in enrollment in the first half of the year bodes well for revenue growth in the second half. During the second quarter, we saw significant year-over-year enrollment growth across our major programs, portfolio training, overseas study counseling, research-based learning, and foreign language training. Our primary offerings The portfolio training program enrolled 561 students during the period, up 26% from 444 in the same period last year. We delivered 28,445 credit hours for portfolio training programs, which is a slight increase from Q2 2020. As we have made a conscious effort in recent years to shift our portfolio training mix to project-based programs versus time-based programs. Project-based program credit hours increased over 20% year-over-year during the second quarter, although total credit hours delivered stayed relatively flat. With our conscious shift to project-based programs, we have also restructured our full-time instructor's compensation to be more focused on the number of projects completed. instead of the credit hours delivered. This grants instructors greater autonomy and flexibility in completing projects and has consequently resulted in improved operating and cost efficiencies while maintaining the same level of quality education and support for our students. This shift has not only contributed to our top line growth but also our bottom line improvement. We do anticipate credit hours delivered for the portfolio training programs to gradually along with enrollments as the increased shift to project-based programs eventually stabilizes over time, with project-based programs credit hours comprising the majority of overall portfolio training credit hours. At this time, we are working closely with overseas partner institutions in delivering our summer programs. We were pleased to offer themed domestic tours similar to those we held last summer, internships, academic projects, as well as various online bootcamps and on-site workshop programs in partnership with our overseas partners. With that, let's move on to financials for the second quarter and first half of the year. Total net revenues for the second quarter of 2021 increased 39.4% to RMB36.8 million from RMB26.4 million in the second quarter of 2020. This was primarily driven by increased contributions from portfolio training and other educational services for which we delivered more services when compared with the prior year period when more restrictions on service delivery were in place due to the COVID-19 pandemic. Gross margin improved to 43.4% during the 2021 second quarter, up from 25.1% in the prior year period, The improvement was contributed by the increasing shift to a project-based program in portfolio training, which has led to improved operating efficiencies and cost optimization in service delivery. Net income attributable to ACG was RMB 14.1 million, which compares to a net loss attributable to ACG of RMB 32.1 million in the prior year period. This was primarily a result of the increase in net revenues and decreased operating expenses related to the deferral of the final RMB 10 million that will be used to fund our research project with the Research Institute of Future Education and Assessment of Tsinghua Project, as well as decreased professional fees, which was partially offset by increased selling expenses related to sales performance bonuses. Turning to the first half of 2021, Net revenue was RMB 74.4 million, up 25.9% from RMB 59.1 million in the same period of 2020. Gross margin improved to 41.5% from 31.1% in the prior year period. Net loss attributable to ACG improved to RMB 4.9 million compared to RMB 52.5 million. Moving to the balance sheet, We continue to be in a solid financial position with US$14.2 million in cash and cash equivalents, working capital deficits with US$28.4 million, and total shareholders' equity with US$34.1 million at June 30, 2021, compared to working capital deficits of US$23.6 million and shareholders' equity of US$30.5 million, relatively. at December 31, 2020. With that, I would now like to turn it over to Kevin, who will expand upon our outlook and growth strategy. Kevin.