ATA Creativity Global

Welcome to ATA Creativity Global's fourth quarter and year-end 2021 financial results. 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 join the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please note this conference is being recorded. I will now turn the conference over to your host, Alice Zhang of the Equity Group. Thank you. You may begin.

Thank you, Operator, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Globals, or ACGs, results for the first quarter year ended December 31, 2021, is available at the IRF section of the company's website at www.atai.net.cf. As part of this conference call, the company has an accompanying slide presentation available on its website. A replay of this broadcast would 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 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 that 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 event for and market acceptance and competitiveness of ACG's portfolio training programs and other education services, the impact of the COVID-19 pandemic on ACG and its operations, and ACG's planned 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 rates associated with investing in ACG is included in its drawings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The company does not assume any obligations to update any forelooking 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 before the quarter of the year ended December 31, 2021, are converted from RMB using an exchange rate of 6.37 to fixed RMB to one U.S. dollar. The noon buying rate ends on December 31, 2021. All historical conversions are accurate as of the time reported, unless otherwise noted. The company reports its financial results under the U.S. GAAP in 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 in slide three. In addition, we're 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, Mrs. Amy Tong, will provide a brief overview of operating and financial highlights for the fourth quarter and year end 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, Mrs. Amy Tong. Please go ahead, Amy.

Thank you, Alice, and welcome, everyone. Good evening to those in America. We appreciate everyone's time. We are pleased with the solid 24.7% growth in revenues and substantial improvement in gross margin we achieved during the full year 2021. This was primarily driven by the increase in services provided during the year as we were able to scale our operations more effectively, significantly reducing the company's losses from the prior year. 2021 revenue growth was primarily supported by increased contributions from portfolio training as we delivered more services as the effects of the COVID-19 pandemic gradually subsided, particularly during the second half of the year. Our research-based learning services also contributed to top-line growth as many of these programs were developed in response to the pandemic. These experimental learning opportunities have been well-received by our students and continue to be in high demand. Our core portfolio training program enrolled 569 students during the fourth quarter of 2021, compared to 636 students in the prior year period. Enrollments tend to be an indicator of future credit hours delivered, and the decrease from the prior year period is a reflection of the increasingly fierce competition we are seeing within the market. We have been proactive in addressing the increased competition, particularly during the second half of 2021, by closely monitoring and enhancing our marketing and promotional strategies. We plan to allocate a larger portion of our marketing resources in 2022 to popular social media platforms in China, such as Douyin, which is similar to TikTok in the U.S., Jihu, which is similar to Quora in the U.S., and Damping with a goal of developing a private pool of leads for our brand. These newer platforms have proven to resonate more with young people, generating leads that have higher potential conversion rates to sales. During the fourth quarter of 2021, we delivered 53,538 credit hours for our portfolio training programs. notable increases in both time-based program and project-based program. Credit hours delivered resulted in a 17.8% increase from the fourth quarter of 2020. While it is less apparent in this reporting period, we have continued to make a conscious effort to shift our portfolio training mix in favor of project-based programs versus time-based programs. This shift was translated into increased revenues and improved margins due to greater operational efficiencies. We have also continued to explore ways in which ACG can better serve a greater population of students from diverse programs. We recently announced the opening of our International Arts Foundation Program Center in Beijing and the Shuren ACG Arts Center. both of which opened the doors in September 2021 and are expecting our offerings to include authorized qualifications and accredited classes to students that may have different needs and desires that traditional programs do not fulfill. With that, let's move to financials for the fourth quarter and through year 2021. Total net revenues for the fourth quarter of 2021 increased 19.3% to 1%. RMB $72.6 million from RMB $60.8 million in the fourth quarter of 2020. This was primarily driven by increased contributions from portfolio training services delivered either in person through ACG's nationwide training center network or through online platform, which represented nearly 75% of total net revenues during the period. Worth margin increased to 62.8% during the 2021 fourth quarter, up from 48.5% in the prior year period. The improvement was driven by the increased revenues and reduced cost of revenues primarily contributed by improved operating efficiencies from the ongoing shift of ACG's portfolio training program mix to project-based programs and related cost optimization efforts. Net loss attributable to ACG improved to RMB 2.5 million compared to net loss attributable to ACG of RMB 24.8 million in the prior year period. This notable improvement was primarily a result of an RMB 16 million increase in gross margin as well as significantly decreased operating expenses. While we continued to invest in our R&D, we were able to reduce G&A expenses by approximately RMB 6.2 million. The decrease in the operating expenses was also a result of an RMB 3.1 million decrease in impairment loss of intangible and other non-current assets and RMB 5.9 million provision for loan receivable and other receivables. Turning to the full year 2021 results, net revenue was RMB 202.2 million up 24.7% from RMB 162.2 million in 2020. This increase was driven primarily by growth in portfolio training, as well as research-based learning services. Gross margin improved to 51.8% from 39.2% in the prior year period. Net loss attributable to ACG improved to RMB 33.6 million, compared to net loss of RMB 92.2 million. This improvement was primarily driven by an investment gain of RMB 33.5 million from the disposal of ACG's K-12 education assessment business during the second half of 2021, and an RMB 41.1 million improvement in lost-term operations. Moving to the balance sheet, we continued to be in a solid financial position with U.S. dollar 11.2 million in cash and cash equivalents. Working capital deficits was U.S. dollar 30.2 million, and total shareholders' equity was U.S. dollar 30 million at December 31, 2021, compared to working capital deficits of U.S. dollar 23.6 million and shareholders' equity of U.S. dollar 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. Kevin.