ATA Creativity Global

Greetings and welcome to the ATA Creativity Global's second 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 Jung of The Equity Group. Please proceed.

Thank you, Hector, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Globals, or ACG, results for the second quarter and six months and the June 30th, 2022, is available at the IR section of the company's website at www.ata.net.cn. 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 and includes, 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 demands 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 risk 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 risk 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 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 second quarter in six months and the June 30th, 2022 are converted from RMB using an exchange rate of 6.6981 RMB to one U.S. dollar. The noon buying rate as of June 30th, 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 company PowerPoint presentation, there is an overview of the company on slide three. In addition, we're more than happy to take any questions during today's Q&A session or via email to the company. You may send emails to me, Alice Zhang, by emailing azhang at equityny.com. On today's call, the company's CFO, Mr. Ruobai Sima, will provide a brief interview of operating and financial highlights for the second quarter of 2022. 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 it over to ACG CFO, Mr. Robert Sima. Please go ahead, Sima.

Thank you, Alice, and welcome everyone, and good evening to those in America, and we appreciate everyone's time. And during the second quarter of 2022, we were pleased to continue supporting our students who chose to continue pursuing their creative arts education via online delivery, and due to local resurgence of COVID-19, in some of our core cities, including Shanghai and Beijing. For late March to early June, we temporarily closed some of our training centers to comply with local lockdown procedures. We are pleased that this restriction has since been lifted and we are able to serve our students in person once again. Total student enrollment remained stable at 1,018 during the period compared to 1,051 in the second quarter of 2021. As a result of temporary training center closures and citywide lockdowns, total credit hours delivered for portfolio training programs decreased by 10.8% compared to the prior year period, which impacted our financials during the period. The impact on portfolio training and research-based learning revenues were partially offset by increased revenue contributions from overseas study counseling services. With the public health situation in China improving once again, we expect demand for our portfolio training and research-based learning programs to rebound. We continue to see significant demand for overseas arts-building study programs and we are confident in ACG's ability to increase its market share in the international creative arts education industry. During the second quarter of 2022, we delivered a total of 25,387 credit hours for our portfolio training programs. We have continued to encourage the ongoing shift in our portfolio training mix in favor of project-based programs versus time-based programs. This is evident in the breakdown where project-based programs credit hours account for 57.8% of total credit hours delivered during the period. With that, let's move to financial highlights for the second quarter and fourth half of the year. Total net revenue for the second quarter of 2022 were RMB 34 million compared to RMB 36.8 million in the second quarter of 2021. As mentioned earlier, the decrease was primarily due to the decreased contributions from the portfolio training and research-based learning services that were impacted by local COVID-19 resurgence and subsequent lockdowns in some of our key cities, including Shanghai and Beijing. Growth margin was 35.6% compared to 43.4% in the prior year period. The decrease were primarily due to decreased revenues during the period, while cost of revenues remained relatively stable year over year. Net loss attributable to ACC was RMB 22.1 million, which compared to a net income attributed to ACC of RMB 14.1 million in the prior year period. The difference here was primarily due to a one-time investment gain for RMB 33.5 million as a result of the disposal of of the company's K-shelf education assessment business in the second quarter of 2021. Turning to the fourth half of 2022, net revenue increased slightly to RMB 76.2 million compared to RMB 74.4 million in the same period of 2021. Growth margins remained stable at 41.2% compared to 41.5% in the prior year period. Net loss attributable to ACC was RMB 37.9 million compared to RMB 4.9 million. Moving to the balance sheet, we continue to be in a solid financial position with U.S. dollar 9 million in cash and cash equivalents. Working capital deficit was U.S. dollar 33.4 million and total shareholder equity were U.S. dollar 22.9 million at June 30, 2022, compared to working capital deficit of U.S. dollar 30.2 million and shareholder equity of U.S. dollar 30 million, respectively, at December 34, 2021. With that, I'd like to turn it over to Kevin, who will expand upon our outlook and growth strategy. Kevin? Thank you, Sunil.