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spk01: 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.
spk04: 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.
spk03: 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.
spk02: Thank you, Simon. We are very honored to be able to provide services to students who are still trying to learn creative art in the past few years. During this time, our goal is to continue to provide students with high-quality courses, courses, services, and completely guide them to complete competitive works, and to enrich their experience by letting students feel the art. We hope that all of this will ultimately make students different from other art schools and gain comprehensive academic experience. We believe that our good record of student achievement can lead us out of competition and hope to continue to develop our business by providing the first-class art education experience for students on the current basis. We are excited about the summer research project that is currently underway overseas in Zhaozhou. One of them is the summer teaching project of the University of London. The students who are involved will be able to participate in the courses of various stages of technical learning in the campus of the University of London, and actually integrate into the environment of English communication. We also provide the project of the future design exploration project that will be held in the Netherlands and Denmark. During this time, students will learn about the current and future design trends, and access the methods of multidisciplinary cross-study, and finally complete the design proposal independently. Students who participate in these projects will receive graduation certificates at the end of the project, and have the opportunity to study one-on-one with some top experts in the field of specific creative arts. We are very happy to be able to provide these summer courses this year. and we look forward to hearing feedback from students. We strive to provide students with valuable and in-depth learning experiences. We believe that the first quarter of 2023 marks the beginning of our business. Following the good working environment of domestic and international travel restrictions at the beginning of the year, we see more and more students re-entering creative art learning, and opportunities to study abroad. We are confident that we can provide services to a wide range of students, including students who are pursuing traditional education and those who choose non-traditional learning paths, and continue to actively explore various service options to meet the needs of all kinds of students. Our mission is still to provide high-quality learning experiences, cultivate and improve the creativity of students, Thank you, Mr. Tsima. We're honored to have served so many students who have remained committed to the creative starts education during the past few challenging years.
spk04: Our goal during this time has been to continue providing a quality curriculum, access and support from teachers and staff, guiding them from start to finish on a competitive portfolio and enriching their education with hands-on arts-related experiences. Our hope is that all of this will eventually culminate in a student having a well-rounded education and experience that would set them apart from others who are applying for art school. We believe our track record of positive student outcomes sets us apart from the competition, and we expect to be on the current momentum and continue to grow our business by providing superior arts education experiences to our students. ACG has continued to offer immersive research-based learning projects. We're excited about the overseas summer camps we're currently enrolling students in. One of the projects is a summer school at University of the Arts London. where participating students will be able to take courses designed for each stage of their art study on the UAL campus and immediately engage in an English speaking environment. We're also offering a future of design exploration work camp hosted in Netherlands and Denmark, through which students will learn about the current and future design trends and be exposed to the interdisciplinary methodology. The goal is for students to independently create a design proposal. Students who participate in this project will receive certificates of completion at the end of the camps and one-on-one study opportunities with some of the greatest minds in the particular areas of creative arts. We're very excited to be offering these summer programs this year and cannot wait to hear from students about their experiences. We continue to be committed to offering valuable, insightful, research-based learning experiences to our students. We believe first quarter 2023 marked an inflection point for our business. With a favorable operating environment given relaxed domestic and international travel restrictions at the beginning of the year, we're seeing an increasing number of students re-engage in the pursuit of a creative arts education and study abroad opportunities. We're confident in our ability to serve a wide range of students. Both those who have followed a more traditional education and those who have opted to follow a non-traditional path of study and continue to actively explore various service options to meet the needs of all student types. Our mission continues to be to provide quality learning experiences that cultivate and enhance students' creativity. In a post-pandemic environment, we believe we're well-prepared to take advantage of the recovering market. and strengthening our leading position in the creative arts education market in China. With that, I'll turn it back over to Mr. Sima.
spk03: In closing, we are excited about ACJ's prospects in 2023 and feel confident in our ability to see the opportunities ahead of us. Our top priority remains our students, and we look forward to continuing to explore ways in which we can expand our services to better support their creative art journeys. With that, operator, let's open it up for questions.
spk01: Thank you. We will now 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 that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment, please, while we pull for questions.
spk04: As we wait for questions to queue, I received some questions via email from William Gragusewski from Greenwich Global that I would like to post to the management team. I'll start with this one. Was there any COVID-related impact on the first quarter numbers, or is it a true reflection of the period?
spk03: Thank you. I think, yes, there are some, of course, I think there are some fantastic bonds during the, after the COVID period. But maybe for one figure, I think for the sales volume, I think, which is very directly with the market situation changes, I think compared for the last quarter, for the same quarter last year, I think we have taken a very great increase, and maybe the total sales volume is down But also we compare with the same figure for the same period in 2019. I mean the period before the COVID-19 occurred. And I think we also take a very big increase. that from the total sales volume is increased from $60 million to $90 million. I think in that way it means that this increase is not only from the COVID impact, it's also from some natural increase. Besides of these, I think we noted that the increase is not the simple increase from enrollment numbers, but also increase about the union price. So in that way, I think that figure can reflect the real situation about the input here. Thank you.
spk04: Thanks, Mr. Sima, for the answer. The second question I have is, can we expect to see student enrollment and credit hours increase on a year-on-year basis for the remainder of 2023?
spk03: Yeah, I think we hope that this trend can be continued. I think our portfolio got bigger and bigger. And currently, we still believe that this increase will keep increasing trend for the following months of this year.
spk04: Great. Appreciate the answer. One last question from Bill is, Where do you think you need to be in terms of enrollment or credit hours to reach profitability? And do you have the cash to get there?
spk03: I think in order to get profitability, it's not a simple question to just simply increase enrollment or credit hours. I think, of course, for the marketing side, I think we get our sales volume and increase is the one way and besides of these and we also try to develop more new business lines and also we will make our pricing methodology more closer and to reflect the marketing situation changes and besides of these maybe we will also focus on our internal controls. I think we will make our operating more efficiency and we will focus on cost controls and the teaching management and more efficient In that way, we can enhance our operating efficiencies. By those approaches, I think we will make our cash management balance, and in that way, I think we can get data to make our probability. Thank you.
spk04: Great, thank you. That's all the questions from Bill. I'll hand it back to the main Q&A session now. Thank you.
spk01: Thank you. As a reminder, if you would like to ask a question, it is star 1 on your telephone keypad. There are no questions at this time. I would like to turn the floor over to Mr. Seema CFO for closing comments.
spk03: 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 investors related from the equity group. We are always available to speak to investors and look forward to speaking with you all during the Thank you.
spk01: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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