ATA Creativity Global

Greetings and welcome to the ATA Creativity Global first quarter 2022 financial results conference call. 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alice Zhang of the Equity Group. Please go ahead.

Thank you, Hector. And hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Globals, or ACGs, results for the first quarter ended March 31, 2022, 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 forelooking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forelooking 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 ACG's portfolio training programs and other education services, mainly including research-based learning and overseas study counseling services. The impact of COVID-19 on ACG and its operations, NACG's planned and anticipated benefits of the measures implemented in response to COVID-19. Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risk and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations were proved to be correct. Information about the risk associated with investing in ACG is included in 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 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 for the first quarter ending March 31st, 2022 are converted from RMB using an exchange rate of 6.3393 RMB to one U.S. dollar, the noon buying rate as of March 31st, 2022. All historical conversions are accurate as of the time reported, unless otherwise noted. The company reports its financial results on the U.S. gap in RMB, and all percentages calculated in the presentation are based on RMB, unless otherwise noted. For those of you following along with the accompanying 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 sessions or via email to the company. On today's call, the company's chairman and CEO, Mr. Kevin Ma, will give some brief opening remarks before turning the floor over to CFO Mr. Ruo Bai Sima, who will provide a brief overview of operating and financial highlights for the first quarter of 2022. Kevin 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 chairman and CEO, Mr. Kevin Ma. Please go ahead, Kevin.

Thank you, Alice, and welcome everyone. Good evening to those in America. We appreciate everyone's time. I'm pleased to be here today with Gene and Sima, our newly appointed chief financial officer. Sima succeeded Amy Tong, who has decided to step down as CFO for patent law reasons. Amy has been with SEG for over 15 years, serving various roles within finance and operations. She has played a key role in our development over these years, and we are grateful for her expertise and many valuable contributions over the years. But only do I consider Ho a close colleague but a friend. Amy will remain with ACG in an advisory capacity over the next few quarters to ensure a smooth transition, and we appreciate Ho's ongoing support. Mr. Smart. brings to ACG 70 years of experience in finance and accounting, as well as strategic and financial planning and execution at public and private companies in the financial automotive and travel industries. Free to join ACG, Mr. Sima served as CFO at various automotive service companies We are confident that his extensive expertise in finance and accounting will be an invaluable addition to our leadership team. With that, I will take it over to Sima to offer first quarter highlights.

Sima Li Okay. Thank you, Kevin, for the kind introduction. I want to begin by sharing how excited I am to be joining ACG at this time in its history. While we are being faced with some challenges caused by the ongoing pandemic environment and increasing competition, ACG has a strong track record of delivering positive student outcomes, and it is a reputable institution in the creative arts education space. And we are well positioned to overcome these short-term hurdles, and I'm very grateful to have this opportunity and to be a part of ACG's incredible bright future. 2022 got off to a very good start, and we saw a modest increase in student enrollment, although credit hours delivered remaining stable during the fourth quarter, and they were able to achieve a 12.1% increase in net revenue. I feel a notable year-over-year improvement in growth and profit and margin. This was primarily driven by increased revenue contributions and from our portfolio training and oversight consulting services, as well as continued project shift and from time-based programs and towards project-based programs. In addition, our research-based learning opportunities have been well received by students and continue to be in high demand. As a few of our core cities continue to face pandemic-related lockdown restrictions, we shifted our delivery method to online where appropriate, offering students greater flexibility and ongoing support despite not being able to take in-person classes. Our co-profiler training program enrolled 537 students during the fourth quarter of 2022. and compared to 528 students in the prior year period. Enrollment seemed to be an indicator end of future credit hours delivered, and we were pleased that enrollment remaining stable year over year despite the resurgence of COVID-19 in certain major cities. During the first quarter of 2022, we delivered 27,494 credit hours for our portfolio training programs. Real total credit hours remaining flat and we have continued to see an ongoing shift in our portfolio training and make in favor of project-based programs versus in time-based programs. And project-based programs credit hours increased 23% and real time-based programs credit hours decreased by 19%. Our continued effort to shift the program may contribute to improved operational efficiencies and given us the opportunity to grow revenue while improving gross margin. We have also continued to explore ways in which ACG can better serve a great population of students from diverse backgrounds. We have received positive feedback from the students who are attending our International Arts Foundation Program Center in Beijing and Shuren ACG Arts Center. both of which opened their doors in September 2021 in order to help students with diverse needs to pursue their further study goals in creative arts. And with that, let's move to financials for the fourth quarter of 2022. Total net revenue for the fourth quarter of 2022 increased 12.1% to RMB 42.1 million. and from RMB 37.6 million in the fourth quarter of 2021. This was primarily driven by an increase in service delivered for portfolio training and overseas study counseling. Portfolio training services were delivered either in person and through ACG's national-wide training center network or via online platform, which represented around 63.3% of total net revenue during the period. Growth margin improved to 45.7% during the 2022 fourth quarter, up from 39.6% in the prior year period. The improvement was primarily driven by three-year staff and the increased proportion of revenues from portfolio training and overseas study counseling services. and improved our operating efficiencies and from ongoing shift of ACG's portfolio training program and mixed towards project-based programs and related cost optimization efforts. Net loss attributed to ACG improved into RMB 15.9 million during the fourth quarter of 2022 and compared to RMB 19 million in the prior year period. And moving to the balance sheet, and we continue to be in a solid financial position, and with U.S. dollar $9.8 million in cash and cash equivalents. Working capital deficit was U.S. dollar $32.3 million, and total shareholder's equity was U.S. dollar $27.6 million at March 34, 2022. Compared to working capital deficit of U.S. dollar $30.2 million, and shareholders' equity of U.S. dollars, 30 million, respectively, and at December 34th, 2021. And with that, I'd like to turn it over to Kevin, and he will explain upon our outlook and the growth strategy. Kevin. Thank you, Sima.

We are pleased with the stable performance delivery in the first quarter of 2022. During this period, China experienced a problem related to local COVID-19 in a few of our key cities like Shanghai, Shenzhen, and Suzhou, which also led to certain travel restrictions across the country. The situation has since worsened with the mandatory lockdowns taking place in major cities. Some of our learning centers have had to close and cease in-person instruction while we are still offering in-person services. to our students in the cities where our campus has remained open. We are providing online course delivery option for students impacted by lockdowns in certain cities. In the short term, this may have impact on business. There will always be students who prefer in-person instruction. However, we believe we are well-equipped to overcome the ongoing challenges presented by the pandemic. The majority of our students are determined to continue pursuing their studies in the face of adversity, and we are prepared to support them to the best of our ability. SMART noted earlier our research-based learning service which tend to be short programs that provide the project-based hands-on learning experience, remain quite popular. The original developers of those programs respond to the pandemic, which brought more accessibility to each of the students in terms of learning objectives, self-delivery forms, and required project time. We are pleased to see is growing since the launch of online research-based learning programs in 2020, and I'm excited about its growth potential beyond the past pandemic era. We are extremely proud of our students and intend to continue investing in our business and its finishing partnership within the industry, which will serve as a foundation for our first future growth. We believe we are well positioned to grow our business with the current portfolio of programs offered as more countries begin to ease travel restrictions. We believe that research-based learning and overseas conserving services businesses will be able to reach their full potential. While we are mindful of the There's some competition within the MAC. We may focus on serving our students and treating their involving needs. We are optimistic about the opportunities ahead of us in 2022 and look forward to maintaining our leading position in creative arts education as we continue to drive positive outcomes for all our students. I'd now like to hand it over to Jun Zhang, SAE's president, to provide an update on our current growth initiatives. Jun will make his marks in Mandarin, which will be followed by English translation. Jun, please go ahead.

Thank you, Kevin. Since the outbreak of the pandemic in early 2020, we have been working hard to develop our online brand. Two years ago, when the COVID-19 pandemic had a huge impact on people around the world, we became clear that we needed a flexible and technically stable long-term recovery method. We continued to invest resources in operations to quickly deal with the impact of the epidemic, and we have always focused on providing the best educational services for our students. Even though we are temporarily closed due to the local epidemic, ASG continues to develop additional online and offline short-term projects under feasible circumstances, including online training camps, internships, domestic tourism, and specific research projects with specific themes. For example, in the first quarter, we held an environmental design practice camp in Hainan, Sanya, and Xi'an, and provided a unique experience for more than 20 students, so that they can create and use marine products in a circular fashion, and learn from local artists. students have the opportunity to create art works and projects of individuals and groups. Some of their works have also been selected to be exhibited in the West Island Protection Center. This event has received positive reviews from the participants. We believe that the epidemic situation in China may improve in the next few weeks, and as the situation calms down, we can maintain a normal state to a certain extent for the remaining major cities in 2022. We continue to develop a better sales and marketing strategy for students and communities. We are working hard to increase the efficiency of our operations and build relationships with domestic and international partners, including universities, universities, educational institutions, and international high schools in China. We believe that our financial situation is good in the short term, but we are still exploring appropriate financing, investment, and purchase opportunities to achieve our long-term growth. Thank you, Kevin. Since the beginning of the pandemic in early 2020,

we have worked to continue developing our online platform. The need to be nimble and flexible, the need to have a technologically sound remote delivery method for our courses became absolutely clear when the unprecedented circumstances of COVID-19 affected people all over the world over two years ago. We have continued to devote resources into quickly reacting to COVID-related influences on our operations and have remained focused on providing the best quality education services for our students, even when some of our campuses are temporarily closed due to local resurgence. ACG has continued to develop additional short-term programs, both online and in-person where feasible, including online book camps, internships, domestic travel, and certain themed research-based learning programs. For example, during the first quarter, we organized an environmental protection, cultural, and creative design camp at CEDAW, an island in Sanya, Hainan Province. offering a unique experience for over 20 students who were able to create recycling marine products and learn from local artists. The students had the opportunity to work on individual and group art pieces and projects, and some of their work was selected into the exhibitions at the Seed Out Protection Center. This program was well received by the participating students. We believe the public health situation in China may improve over the next several weeks. and remain optimistic about the remainder of 2022 as the situations change and major cities can resume some level of normalcy. We continue to plan for short-term summer camps and theme travels in the coming summer. We're determined to continue developing programs that cater to the needs of different student populations and to support them in every way we can, like we always do, with the best quality education and teaching experiences. Our operational strengths and growth prospects are based upon the experience of our veteran teachers, our continuously evolving sales and marketing strategies to better resonate with the appropriate student population. Our ongoing efforts to improve operating efficiencies as well as to establish relationships with domestic and international partners, including university and colleges, education institutions, international high schools in China, and more. We believe we're well positioned financially in the near term, but have been exploring financing, investing, and M&A opportunities where appropriate to enable our long-term growth. ACG's mission is to provide quality learning experiences that cultivate and enhance students' creativity. We're confident in our ability to maintain our competitive advantages and leading position in the creative arts education market in China. In 2022, We look forward to serving a growing population of students with diversified needs in pursuing the creative arts education. With that, I'll turn it back over to Kevin.

Thanks, Jean and Alice. In closing, we are optimistic about AGE's prospect in 2022 and look forward to continue to serve our students regardless of what their situation is locally. We are committed to our mission of empowering students to achieve success in the creative arts and we continue exploring ways in which we can expand our offering to help more students in their pursuit of creative arts education. That operates. Let's open it up for questions.

Thank you. At this time, we will be conducting a question and answer session. 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. If you would like to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. There are no questions at this time. I'd like to turn the call back over to Mr. Kevin Ma for closing remarks.

Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach out directly to us or our investor relations from the Apt Group. We are always available to speak to investors and look forward to speaking with you all during our next quarterly call. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.