ATA Creativity Global

Greetings. Welcome to ATA Creativity Global's second quarter 2023 financial results 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. Please note this conference is being recorded. I will now turn the conference over to Alice Yang 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 second quarter and six months ended June 30, 2023. It 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 ACGs' 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 with 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 and adjustments taken by ACG as China eased COVID-19 pandemic-related restrictions, market demand for and market acceptance and competitiveness, of ACG's portfolio training programs and other education services. Although the company believes that the expectations reflected in these forward-looking statements are reasonable as of today, those statements are subjected 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 forward-looking 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 and six months ended July, June 30, 2023, are converted from RMB using an exchange rate of 7.2513 RMB to one U.S. dollar. The noon buying rate as of June 30, 2023. All historical conversions are accurate as of the time reported, unless as noted. The company reports the financial results under U.S. GAAP in RMB. and all percentage 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'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 the 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 second quarter of 2023. 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, Mr. Rob Aizuma. Please go ahead, Mr. Sima.

Thank you, Alice, and welcome, everyone. And good evening to those in America, and a very precious everyone's time. We were pleased to see positive enrollment trend from the fourth quarter of 2023 continue into the second quarter. We saw some fantastic months at the start of the year when domestic and international travel restrictions were lifted in China. However, enrollment levels normalized over the course of the second quarter of 2023. Total student enrollment for the second quarter 2023 award was 928 compared to 1,018 in the prior year period. However, excluding 155 students who were enrolled in the foreign language training business that were disposed of in third quarter 2022, student enrollment actually increased 7.5% year over year. We also achieved stable growth in net revenue compared to the prior year period, which was primarily due to increased service delivered for portfolio training and overseas daily counseling. We delivered 28,698 credit hours for the portfolio training program in Q2, a 13% increase from the prior year period. As a result of increased growth profit and lower operating expenses, we also reported improved year-over-year bottom line results. We were particularly excited about our overseas summer programs this year. As this is the fourth summer, we resumed offering this type for programming since the COVID-19 pandemic. With so strong demand for those offerings, many of which have been delivered at this point in time and have been filled with the positive feedback we have received from students thus far. We remain excited about the prospects of all major lines of business in the remainder of the year. With that, I will quickly reveal the financials. Total net revenues for second quarter 2023 increased 6.5% to RMB 36.2 million. compared to RMB 34 million in the second quarter of 2022. It was primarily driven by increased revenues from portfolio training and overseas daily counseling services. Despite a lack of revenue from the disposal of foreign language training services business, portfolio training services represented 78.1% of the total net revenue during the period. Growth margin improved to 39.5% during second quarter 2023, compared to 35.6% in the prior year period. The increase in growth margin was primarily due to increased net revenues, while the cost of revenue remained relatively stable from the prior year period. Net loss due to ACG narrowed to RMB. 17.2 million during second quarter 2023 compared to RMB 22.1 million in the prior year period, which was primarily a result of increased net revenues and decreased operating expenses during the period. Turning to the fourth half of 2023, net revenue increased to RMB 78.6 million compared to RMB 76.2 million in the prior year period. Growth margin improved to 42.1% from 41.2% in the prior year period. Net loss attributed to ACC narrowed to RMB $35 million compared to RMB $37.9 million, primarily due to decreased operating expenses. Moving to the balance sheet, we continue to be in a solid financial position with US dollars $7.8 million in cash and cash equivalents. Working capital deficit was US$35.9 million and total shareholders' equity was US$15.2 million at June 30, 2023 compared to working capital deficit of US$33 million and shareholders' equity of US$20.8 million respectively at the December 34, 2022. With that, I'd like to turn it over to Kevin who will expand upon our outlook and growth practice.