ATA Creativity Global

Greetings and welcome to the ATA Creativity Global's first quarter 2023 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 anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Alice Zhang with the Equity Group. Thank you, Alice. You may begin.

Thank you, Camilla, 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, 2023, 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 site 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 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, intend, 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. including initiatives taken by ACG as China's public health situation has improved, market demand for and market acceptance and competitiveness of ACG's portfolio training programs and other education services, and the impact of the COVID-19 pandemic on ACG and its operations. Although the company believes that the expectations reflected in its forward-looking statements are reasonable as to 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 the 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 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 the first quarter ended March 31, 2023. are converted from RMB using exchange rates of 6.8676 RMB to 1 US dollars. The noon buying rate as of March 31st, 2023. All historical conversions are accurate as of the time reported unless otherwise noted. The company reports its financial results under US 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 on 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. If you wish to ask questions, you can send your questions to the email address azhang at equityny.com. And please specify whether you would like to have your name read during Q&A session. On today's call, the company's CFO, Mr. Rob Aizuma, will provide a brief overview of operating and financial highlights for the first quarter of 2023. As Chairman and CEO Mr. Kevin Ma is unable to be here today due to personal reasons, Mr. Sima will join President Mr. Jun Zhang in providing an update on the company's outlook and long-term growth strategy before opening the floor for questions. With that, I'll turn the call over to ACG CFO, Mr. Robert Sima. Please go ahead, Mr. Sima. Sure.

Thank you, Alice, and welcome everyone. Good evening to those in America. We appreciate everyone's time. 2023 got to a strong start of ACG with students and the teaching staff back in the classroom across our 21 training centers nationwide. We were very pleased to report a 10% increase in student enrollments during the fourth quarter, which was driven by a notable increase in portfolio training students. The real-life stable total net revenue of RMB 42.3 million, which was supported by the Portfolio Trading Services and Overseas Study Coupling Services business. Everyone at ACG is working hard in anticipation of launching our overseas summer camps and other programs that will be held. during the summer for the fourth time since the pandemic began in 2020, and we have seen strong demand from students for these summer programs. Total student enrollment for fourth quarter 2023 was 1,097, an increase of 10% from 997 in the prior year period. FAA excluded 171 students who were enrolled in the four-language training systems that were disposed of in the third quarter of 2022. The enrollment increase would have been 32.8%. Enrollment in our co-portfolio training programs increased more than 20% with 648 students enrolled during fourth quarter 2023 compared to 537 students in the prior year period. 7,630 credit hours for our portfolio training programs, with a more flexible project-based portfolio training program accounting for approximately two-thirds of all portfolio training credit hours delivered. We continue to encourage our students to opt from the project-based programs, and more favorable mix has contributed to improved operational efficiencies giving us an opportunity to grow revenue without sacrificing the quality of teaching. With that, let's move to financials for fourth quarter 2023. Total net revenue for fourth quarter 2023 remains stable at RMB 42.3 million compared to RMB 42.1 million in the fourth quarter of 2022. This was primarily driven by portfolio training and overseas daily counseling services. Portfolio training services represented 4.6% of total net revenues during the period. Growth margin was 44.3% during the fourth quarter of 2023, compared to 45.7% in the prior year period. The decrease in growth margin was primarily due to the increased cost of service related to higher compensation expenses incurred for third- certain teaching staff who were engaged in enhancing the efficiency and the quality of service delivery, an initiative that began in the second quarter of 2022. Next slide attributes to ACTU's RMB 17.8 million during fourth quarter 2023 compared to RMB 15.9 million in the prior year period. which was primarily a result of increased sales successes related to performance bonus awarded in line with the enrollment growth during the period. Moving to the balance sheet, we continue to be in solid financial positions with U.S. dollars, 9.6 million in cash and cash equivalents, within capital deficits with U.S. dollars, 35.5 million, and total shareholders' equity with U.S. dollars, $18.4 million at March 34, 2022, compared to working capital deficit of US$33 million and shareholders' equity of US$20.8 million, respectively, at December 34, 2022. Now turning our attention to ACG's outlook and growth strategy, we are delighted to welcome all of our students back in person at our training centers, at the start of 2023. With the pandemic luckily behind us, we were pleased to have achieved such strong enrollment being driven by our portfolio training service business, resulting in consistent revenues for the quarter driven by the portfolio training and overseas study counseling services. As many students are preparing to apply for overseas education, since many countries, including China, have relaxed travel restrictions. We recently launched our branding strategy, introducing a new contemporary logo and motto, Beyond the Difference. We believe these new elements better reflect our goal of helping students find the courage and the determination to be their authentic self and embrace original thoughts and extensions. and we think today's students will identify with our philosophy and approach to creative education. ACG Press itself has been an innovative and forward-thinking organization, and we hope to instill in our students a love for creativity and sharing of ideas among different people from different places and life circumstances. Enrollment during fourth quarter 2023 appeared to mark the start of a more positive trend within our research-based learning services business, as many students have signed up for various overseas camps and plans for this summer. These programs were historically strong drivers for our business during the summer season, and we anticipate sinking full advantage of of the strong demand of these programs in 2023. We continue to work closely with our overseas educational partners and teaching staff, and looking forward to delivering rewarding experiences to our students, which will expand upon our efforts here at Charlotte. We would also like to congratulate students who endured a different college application process and are finally being rewarded for their efforts with admission letters from their dream schools. For the applications submitted in academic year 2022, ACG students have had continued success with offers of admission coming from prestigious art schools such as Berkeley College of Music, Royal College of Art, Howard University, Columbia University, and the list goes on. We are proud of these students who have are aware through a certain pandemic environment and are thrilled to see them continue pursuing their creative educations at schools for their choice. They are optimistic that they are by and large operating in a post-pandemic year. Actually also observing children in our business due to the improved public health situation and opening up for international travel. We believe we are well positioned to continue executing our growth initiatives, including expanding our partnership as well as our portfolio of offerings. With the help of our reputable institution partners and our ability to continuously adapt our offerings to serve the changing market, we are eager to continue delivering positive student outcomes and strengthen our reputation in the creative arts education industry. I'd like to hand the floor over to Jun Zhang, ACG's president, to provide an update on our current growth initiatives. Jun will make his remarks in Mandarin, which will be followed by an English translation. Jun, please go ahead.