ATA Creativity Global

Greetings. Welcome to ATA Creativity Global Second Quarter 2024 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 Zhang of the Equity Group. Thank you. You may begin.

Thank you, Alfredo, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global's, or ACG's, results for the second quarter in six months and the June 30th, 2024 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 contain 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, guidance, 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, ACG's 2024 guidance, 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 its forward-looking statements are reasonable as of today, those statements are subject to risks 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 risks 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 marketing conditions, or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to slide 2 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 June 30, 2024. are converted from RMB using an exchange rate of 7.2672 RMB to one US dollar. The new buying rate is as of June 30th, 2024. All historical conversions are accurate as of the time reported unless otherwise noted. The company reports the financial results on the US GAAP in RMB and all percentages calculated in the presentation are based in 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 in today's Q&A session or via email to the company. If you wish to ask questions, you can send your questions to email address avhang 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. Robyce Sima, will provide a brief overview of operating and financial highlights for the second quarter of 2024. 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 this floor for questions. With that, I'll turn the call over to ACG CFO, Mr. Robyce Sima. Please go ahead, Mr. Sima.

Thank you, Alice, and welcome, everyone, and good evening to those in America. We appreciate everyone's time. We were pleased to see students' demand for portfolio training services continue to expand in second quarter 2024. This is our core business and primary driver of growth, contributing RMB 40.2 million in revenue during the period, up 41.9% year-over-year. As a result, we achieved significant top-line growth a 42.8% increase in total net revenue to RMB 41.8 million. During second quarter of 2024, student enrollment was 1,084, an increase of 15.8% from the prior year period. Of those students, 612 were enrolled in ACG portfolio training programs, compared to 540 in the second quarter of last year. 42,841 portfolio training credit hours were delivered during the period, up 49.3% year-over-year. We are excited to see continued expansion across all of our business, including research-based learning and overseas study counseling services. We strongly believe in the value our comprehensive offerings provide to students and expect that enrollment growth we have seen thus far in the year will spot strong performance in the second half of 2024. Our investments in expanding the teaching and sales staff have contributed to those results and serve as a foundation for future growth. With that, let's move to financials for second quarter 2024. Total net revenues for second quarter 2024 was RMB 41.8 million, an increase of 42.8% from RMB 36.2 million in the second quarter of 2023. Growth margin improved to 49.6% during the second quarter of 2024, from 39.5% in the prior year period, primarily as a result of significantly increased revenues. Net loss attributed to ACT was RMB 16.8 million during the second quarter of 2024. compared to RMB 17.2 million in the prior year period. Bottom line results were impacted by a 30.2% increase in operating expenses related to increased G&A expenses for higher professional fees and support for business retention and increased sales expense due to the performance bonus in line with increased sales and the area of additional sales personnel. During the first half of 2024, Total net revenues increased 27.2% to RMB 99.9 million compared to RMB 78.6 million in the prior year period. Growth margin improved to 47.7% from 42.1% in the prior year period. Net loss attributed to ACT was RMB 34.7 million compared to RMB 35 million. Moving to the balance sheet, we reported U.S. dollar 5.5 million in cash and cash equivalents at the end of second quarter 2024. Working capital deficit was U.S. dollar 48.7 million, and total shareholders' equity was U.S. dollar 11 million at June 30, 2024, compared to working capital deficit of U.S. dollar 34.4 million. and shareholders' equity of US$16.9 million respectively, December 34th, 2023. With that, I'd like to turn it over to Kevin, who will expand upon our outlook and growth strategy. Kevin?

Thank you, Sima. We are pleased to see ACG's portfolio of offerings continue to resonate with students, translating into meaningful financial results. As our portfolio training service business grows, we believe the demand for overseas study, consulting, and research-based learning service will also expand. During the first half of 2024, we made mindful investments to add resources to help drive students' enrollment and support the growing students' population, which is imperative to enable positive student outcomes and our ability to achieve long-term success. We reported RMB 99.9 million in net revenues in the first half of 2024, and the second half of the year has historically been stronger than they are than the first. The training we anticipated will continue in 2024. We are reiterating our revenue expectations for the year and a million. I'm sorry. We are We are entering our revenue expectations from the year ending December 31, 2024. We expect the total revenue will be in the range of RMB $230 million to RMB $255 million, which represents a 5% to 50% increase for the fiscal year 2020. ACG remains focused on growing our student base and expanding our current business while exploring potential acquisition opportunities. And as any material developments arise, we'll be sure to update the MACs and re-evaluate guidance as appreciated. ACG is a product of its ability to identify and fulfill students' needs in an ever-growing social and creative environment. This is the cornerstone of our product design and execution, especially as our students have increasing time from devices. academic and creative backgrounds. To that end, we have not only continued to engage teaching staff in the sales and the course design process, but we also hosted the ACG Arts Education Exhibition in April across five major cities in China, including Beijing, Shanghai, Shenzhen. At the exhibition, We invite former and current admission committee officers from prestigious overseas universities such as MIT and Stanford University to join us in sharing their insights on overseas studies, applications, and career planning. The exhibition was met with extraordinary across all of our service operations. Through a series of marketing efforts, we continue to increase our market exposure and engage with students who are interested in potentially exploring creative arts education in the future. During the second quarter of 2024, we successfully hosted the first session of the United Nations Sustainable Development Goals to 70 students. Participating students ranged from high school to college age, and they came together to create a group of projects on sustainability topics with a variety of applications, such as climate changes, regenerative energy, and environmental protection. Our math classes have also gathered small groups of students in their respective areas of interest, allowing them to work away with individual artworks in visual communication, photography, as well as interior design and wear. hope will strengthen their portfolio for overseas school applications. We are very excited for many of our graduating students who will embark on the next phase of their creative arts education at overseas institutions this fall. For all 2024 admissions, we have seen significant growth in the number of offers received by ACG students. Those offers have come from schools all over the world, including top institutions such as Harvard, Oxford, and University of Pennsylvania, as well as top arts institutions such as School of Visual the Pratt Institute, and the Parsons School of Design. We believe this positive trend in received offers is a positive indicator of increased student demand for overseas student opportunities, which bodies will for our overseas study concerning service business. We believe those trends will continue into the coming application period. I now hand the floor over to Jun Zhang, ACG's president, to provide an update on our current growth initiative. Jun will make his remarks in Mandarin, which will be followed by an English translation. Jun, please go ahead.

Thank you, Kerith. In the process of investing in the expansion of ACG business, our products and service quality have always been the first factor to consider. After all, our comprehensive service and the ability to provide support to students in this journey are the real reasons for everything to change. We are very happy to have implemented various research projects this summer, covering a wide range of art topics and cultural practical experiences in the forest. Based on the activities successfully held in the first period of May, In July, we held the second edition of the Art Training Camp of the United Nations Sustainable Development Goals. The activity was once again highly appreciated by the participants. In addition to the famous lecturers of the Art Academy and the online professors' classes, we held two new creative camps in Dunhuang and Chuanxi, led by the lecturers of Luo Dao Design School and Yale University, to explore the beauty of Chinese traditional art. In Dunhuang, the students visited the Mogu School We believe that these types of experiences provide students with a unique learning opportunity and perspective, allowing them to explore content that they know and are familiar with outside the world. The ability to adapt and open their minds is especially valuable for those who plan to study abroad. They have to make a solid workbook for application, to show the understanding and love of different cultures and traditions. This summer, we also brought the students overseas through school and interviews, to go to Japan, the United States and the UK. We know that education is the foundation of student success in both academic and professional fields. ACG is proud to establish and maintain high-level cooperation with world-renowned institutions. We look forward to expanding our cooperation network to provide students with more world-class educational resources. We expect to enter the overseas study season soon and prepare to provide trustworthy guidance and support to our students at this time of pressure and excitement. We will put our whole heart into helping students achieve excellent results and look forward to spending a busy but effective summer in the coming autumn. In the remaining time in 2024, Thank you, Kevin.

As we have invested in the expansion of ACG's business, the quality of our products and services have stayed top of mind. At the end of the day, our well-rounded offerings and the ability to support students in this journey are what really make all the difference. We have been pleased to host a variety of research-based learning experiences this summer, covering a wide range of art topics and immersive, hands-on cultural experiences. In July, we hosted a second session of the United Nations Sustainable Development Goals Arts Bootcamp, inspired by the success of our May session, which is once again highly rated by participating students. In addition to online master classes taught by prestigious arts institution lecturers, we also hosted two intangible cultural heritage-themed camps in Dunhuang, Gansu Province and West Sichuan Province. which are led by instructors from Rhode Island School of Design and Yale University to explore the beauty of China's traditional arts. In Dunhuang, students visited Mogao caves and Yulin caves to study Dunhuang-styled colored sculptures and mineral paintings. In West Sichuan, students were exposed to ethnic music and cultural traditions and experienced Tibetan culture. We believe these types of experiences provide students with a unique learning opportunity and perspective, allowing them to go beyond the world they know and are familiar with. The ability to adapt and be open-minded is particularly valuable for those who plan to study overseas and must create a solid application portfolio that demonstrates an understanding of and love for art for different cultures and traditions. We're also bringing students overseas this summer to Japan, the United States, and to the United Kingdom through summer schools and campus visits. Understanding that education is the cornerstone of a student's lifetime success, both academically and professionally, ACG has prided itself on our ability to establish and maintain highly collaborative relationships with world-renowned institutions. And we look forward to growing our partnership network to assess more world-class educational resources for our students. We expect to enter the overseas study application season soon and are prepared to serve as a trusted guide and supporter to our students during this stressful but exciting time. We remain fully committed to our mission of enabling positive student outcomes and look forward to a busy and productive remainder of the summer as we head into the fall. In the balance of 2024, we're focused on growing our current business, which includes portfolio training services, overseas study counseling, and research-based learning services. We remain very confident in ACG's superior competency in the market while continuing to invest in the operational infrastructure to ensure that we're able to provide students with the exceptional education and support system they have come to expect. With that, I'll turn it back over to Kevin.

Thanks, Jean. We are pleased with our progress in the first half of 2024. and are optimistic that the positive momentum we have experienced thus far will enable us to finish the year on a strong note. As a leading player in China's creative arts education market, we are proud to say that we always strive to find ways to improve ourselves and help our students to achieve their full potential. We believe We are on the track to carry out our growth initiatives and drive success for our students and for ACG's shareholders. With that operate, let's open it up for questions.

Thank you. If you would like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line is in the question queue. If you're using a speaker, you may have to pick up your handset before pressing the star keys. One moment while we poll for questions. There are no questions at this time. I would like to hand it back over for closing comments. Alice, do you have any closing comments?

Kevin?

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

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.