ATA Creativity Global

Greetings. Welcome to the ATA Creativity Global's third quarter 2021 financial results conference. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. If you would like to ask a question, please press star one on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Caroline Sohn. Thank you. You may begin.

Thank you, operator, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global's, or ACG's, results for the third quarter ended September 30th, 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 at ACU'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, could, estimate, expect, forecast, future, intent, look forward to, outlook, plan, should, will, and similar terms 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 and market acceptance and competitiveness of ACG's portfolio training programs and other education services, the impact of the COVID-19 pandemic and the opinion 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 ECG 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 marketing 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 third quarter ended September 30th, 2021 are converted from RMB using exchange rate of 6.4434 RMB to one U.S. dollar. The new and buying rate as of September 30th, 2021. 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. 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 CFO, Ms. Amy Tung, will provide a brief overview of operating and financial highlights for the third quarter 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 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. We are pleased to have achieved strong top line growth while improving gross margins year over year during the third quarter of 2021. This was primarily contributed by increased services delivered during the period across all major line of business, mainly the portfolio training programs and research-based learning services. This growth was also supported by stable overall enrollment in the variety of programs we offer. Specifically, we saw increasingly positive reception and interest in our research-based learning offerings. Our primary offering, the portfolio training program, enrolled 625 students during the period, which remained steady from the same period last year. We delivered 44,640 credit hours for portfolio training programs, which is a slight increase from Q3 2020. We were pleased to see project-based program credit hours increase over 29% year-over-year during the third quarter, a result of our conscious effort to shift our portfolio training mix toward project-based programs versus time-based programs, which has increased operational efficiencies that have translated into revenues and margin improvements. We continue to explore ways in which we can better serve our students by investing in the development of new offerings and our IT platform, which we believe will serve as a foundation for future growth. Our revenues generated from the research-based learning services business saw a notable increase from the prior year period, and we anticipate the demand for these types of experimental learning opportunities will continue to grow. This summer, we offered themed domestic tours, internships, academic projects, as well as various online boot camps and on-site workshop programs in partnership with our overseas institution partners, as well as certain industry partners. And we look forward to making these types of offerings available throughout the year. With that, let's move to financials for the third quarter and first nine months of the year. Total net revenues for the third quarter of 2021 increased 31% to RMB 55.3 million from RMB 42.2 million in the third quarter of 2020. This was primarily driven by increased contributions from portfolio training and research-based learning 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 51.4% during the 2021 third quarter, up from 37.4% in the prior year period. The improvement was primarily driven by the increased revenues and operating efficiency gained from the ongoing shift of ACG's portfolio training program, mixed with project-based programs and related cost optimization efforts. Net loss attributable to ACG was RMB 26.2 million, which compared to net loss attributable to ACG of RMB 14.9 million in the prior year period. This was primarily a result of increased operating expenses related to the final RMB 10 million to fund ACG's research project with the Research Institute of Future Education and Assessment of Tsinghua University this year. which was deferred from the prior sequential quarter, as well as increased selling expenses related to higher sales performance bonuses and increased legal and professional expenses. Turning to the first nine months of 2021, net revenue was RMB 129.6 million, up 28% from RMB 101.3 million in the same period of 2020. Gross margin improved to 45.7% from 33.7% in the prior year period. Net loss attributable to ACG improved to RMB 31.1 million compared to net loss of RMB 67.4 million. Moving to the balance sheet, we continue to be in a solid financial position with US$11.7 million in cash and cash equivalents. working capital deficits with US$31.3 million and total shareholders' equity with US$30.1 million at September 30, 2021, compared to working capital deficits of US$23.6 million and shareholders' equity of US$30.5 million, respectively, 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.