ATA Creativity Global

Greetings. Welcome to ATA Creativity Global's third quarter 2024 financial results call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Alice Zhang with the Equity Group. Thank you, Alice. You may begin.

Thank you, Operator. Good morning to all of you joining us from China, and good evening to all of you joining us from the United States. Please be advised that the discussions on today's call may include forward-looking statements. Such forward-looking statements involve certain risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the company's most recent SEC filings for a more complete description of various factors that could affect these projections and assumptions. The company assumes no obligation to update for looking statements as a result of new information, future events, or otherwise. Regarding the disclaimer language, I would also like to refer you to slide two of the conference call presentation, which is accessible via the IR section of ACG's website. A simultaneous audio webcast is also accessible via the IR section of ACG's website, including the replay, which will be available for the next 90 days. ACG's Chairman and CEO, Mr. Kevin Ma, will start this call highlighting the company's third quarter and nine-month key operational and financial achievements. CFO Mr. Robert Sima will provide an overview of financial and operating results for third quarter and nine-month 2024, expectations for the remainder of 2024, and four-year guidance. President Mr. Jun Zhang will conclude the prepared remarks with an update on the company's long-term growth strategy before opening the floor for questions. For those of you following the company's slide presentation, please refer to the slides for further details. With that, I'll turn the call over to ACC's Chairman and CEO, Mr. Kevin Ma. Please go ahead, Mr. Ma.

Thank you, Alice. Welcome, everyone. Evening to those in America. I appreciate everyone's time. As Alice mentioned, this refers to our early available on the IR site of our website as we go through our prepared remarks. During the third quarter of 2024, ACG continued to focus on providing quality service to our various students and parents, developing product and service offerings to attend to our students' growing and evolving needs. new partnerships with institutions within the art industry, as well as seeking collaboration opportunities across different industries. As a last term, the third quarter of 2024 was a strong quarter for SEG in terms of net revenues and student earnings. We reported a double-digit growth in net revenues and overall student This is highlighted by strong student elements for our portfolio training programs as well as increased credit hours delivered during that period. For 9 months 2024, we saw equal strong year-over-year improvements as net revenue overall elements rate and credit hours delivered. or increased by more than 20% compared to 9 months 2023. Portfolio Trading Services remains our main source of revenues, contributing more than 70% of our total revenues for both third quarter 2024 and 9 months 2024. Within this part of the service, we continued to encourage students to sign up for project-based programs. As a result, this segment continues to account for the majority of our portfolio training service, responsible for 70% of total credit in our university course. Thanks to our continuous effort in developing various programs and offerings, We are also seeing a growing interest in other parts of our service. Student elements for research-based learning and overseas study concerning increased by more than 20% compared to the third quarter of 2023. For this summer, our highest projects include the second session of the United Nations sustainable development goals of both campuses. Two integrable culture heritage campuses in China, one U.S. campus in Seoul, and two summer campuses in London and Tokyo. In addition, for the first time since the pandemic, apart from our usually online master classes, we also hosted the ACG Summer Lab providing students with the opportunity to study in person with lecturers joining us from British art institutions and the art field in general. We believe the capability to provide those various experiences is one of APJ's core competences in the British art market, which is due to our continuous investment and close monitoring of the art students in the academia and the industry, as well as the strong global partnership network that allows us to produce world-class resources. During the third quarter of 2024, we continued to expand our partnership network by establishing new strategic partnerships with leaders and service areas in the U.S. which dreams will extend our lives. With that, I will hand over the call to Suma for a detailed overview of our financial and office results for the quarter of 9 March 2024 and our guidance for fiscal year 2024.

Thank you, Kevin. And I will start with third quarter and nine months key financial metrics. Total net revenues for third quarter 2024 were RMB 67.3 million, an increase of 13.1% from RMB 59.5 million in third quarter 2023, which was primarily due to increased revenue contributions from research-based learning and portfolio training services. Growth profit from third quarter 2024 was RMB 13 million, an increase of 2.6% from RMB 29.2 million in the third quarter 2023. Growth margin was 44.6% during third quarter 2024 compared to 49.2% in the prior year period. The decrease in growth margin was mainly a result of higher costs related to more teaching staff here as compared to third quarter 2023 to accommodate increased numbers of students and the larger outsourcing costs related to research-based learning services. Total operating expenses were RMB 47.7 million in third quarter 2024, an increase of 28.4% from RMB 37.1 million in the third quarter 2023. The increase was primarily due to RMB 5.4 million increase in sales expenses related to increased number of sales personnel and marketing events. As well as RMB 5.6 million increase in general and administrative expenses related to increase professional fees and business expansion related investments. As a result, loss from previous in third quarter 2024 was RMB 17.6 million compared to RMB 7.9 million in third quarter 2023. Net loss attributed to HAC during third quarter 2024 was RMB 14.7 million compared to RMB 7.3 million in the prior year period. Turning to 9 months 2024, total net revenues increased 21.1% to RMB 167.1 million from RMB 138 million in the prior year period. The increase was primarily attributed to increased contributions from portfolio training, research-based learning, and overseas study counseling services. Growth profit for nine months 2024 was RMB 77.6 million, an increase of 24.6% from RMB 62.3 million in nine months in 2023. As a result of increased revenues during nine months 2024, growth margin slightly improved to 46.4% from 25.1% in 9 months 2023. Total operating expense was RMB 137.7 million in 9 months 2024, an increase of 22% from RMB 112.9 million in 9 months 2023. The increase was primarily due to RMB $14.4 million increase in sales expenses related to increased number of sales personnel to drive sales growth, as well as RMB $10.5 million increase in general and administrative expenses related to increased professional fees and business expansion-related investments. As a result, long-term operations in 9 months 2024 was RMB 16 million compared to RMB 50.6 million in 9 months 2023. Net loss attributed to ACJ in 9 months 2024 was RMB 49.4 million compared to RMB 42.2 million. Moving to the balance sheet highlight, as of September 30, 2024, we had RMB 39.4 million in cash and cash equivalents. total assets of RMB 459.4 million, total liabilities of RMB 393.2 million, and total shareholders' assets of RMB 66.2 million. Moving on to year-to-date enrollment trends. For 9 months 2024, total student enrollment increased by 20% as compared to 9 months 2023. supported by strong students' interest growth in both ACP portfolio training and all other programs. Portfolio training students' enrollment for nine months 2024 increased by 20.7% to 2,220, and all other program students' enrollment for nine months 2024 increased by 19.1% to 1,523. Credit hours delivered for portfolio training services and historically higher due to seasonal reasons and students rarely start their portfolio creation work in the second half of the year for enrollment in the following fall semester. For 9 months 2024, credit hours delivered significantly increased by 28.5%, whereby time-based programs credit hours increased by 29% and project-based programs credit hours increased by 28.3%. We remain committed to offering high quality services across our business line and to students who seek guidance and support in their pursuit of a study and a career in art. With that, let's move into guidance to full year 2024. We believe we are on track to achieve our full year 2024 revenue guidance for RMB 233 to RMB 255 million. representing a year-over-year increase of 5% to 15% for full year 2023. Our belief is based on the strong enrollment trend we are seeing and our ability to expand current services and offerings. For the remainder of 2024, portfolio training services will continue to serve as a primary growth driver for our business, as well as important student acquisition channels for our other businesses. I'd like to turn it over to Jun, who will expand upon our long-term growth strategy. Jun, please go ahead.

Thank you, Sima. Our growth strategy revolves around four pillars. Organic growth, expanding the area of service, and releasing new services and potential purchase opportunities. First of all, regarding organic growth, as Sima mentioned, we have always encouraged students who participate in our product training services to select project-based courses. These courses provide more flexible and customized courses according to the needs of the students. We are also excited to see the rapid growth trend in the current market. We see that more students from works and training services are interested in our increased products. The number of students who buy research and study services has increased, which brings more income contributions. In addition, our teaching staff participated in the sales and product design process, which also helped us improve the quality of the courses and promote sales. We have expanded the coverage of all city districts and integrated regional resources into larger districts. For example, in 2024, we expanded to Shanghai and Beijing districts to serve more students. We recently opened the ACG London Service Center to expand the service to students who have been recruited by the UK and have just started living overseas. In the London Center, we provide academic counseling, student community and school activities, as well as professional development support. In addition, it also helps students settle down in the first few months of studying abroad. For research services, innovation and continuous promotion of new projects are extremely important. For this reason, we actively invest and explore new trends in the field of art. From the art profession based on computers, such as digital art, application interaction, game design, and artificial intelligence generation content, to new art themes and professional choices, such as art therapy, green environmental architecture, and urban design, We continue to expand our global influence by continuously expanding our relationship with domestic and international organizations. In the third quarter, we signed a new cooperation agreement with the famous British music school, Leeds Music School. The lecturers of Leeds Music School will cooperate with SGE to apply for guidance and talk about works and preparation tips for SGE students. In addition, we have recently reached strategic cooperation with Yuzhou Star Education Technology. to promote the integration of art and artificial intelligence. Through the artificial intelligence technology and cloud platform of Green Planet, we hope to introduce the support of artificial intelligence to upgrade the existing course service and interaction mode, and to promote our long-term growth by providing better products and services to students. In October this year, we will continue to hold the Art and Training Camp of the United Nations Sustainable Development Goals. This is the third episode since its first launch in May this year. We also held the Shanghai Fashion Week project in October, so that students who want to study and engage in fashion design and fashion brand management in the future can understand the first line of fashion week. In October, HG held the Autumn Art Education Exhibition in 10 cities in China. Inviting professors from Luo Dedao Design School and other schools to give the main speech and share application tips. At the same time, we also invited HG students to share their learning experience and professional advice. We continue to focus on increasing the number of students, expanding the scope of the school, from students who want to seek overseas learning opportunities to those who want to expand their career opportunities, and to those who are willing to explore various art themes. ACE's mission is still to become a partner worthy of trust for students. No matter at what stage they are in academic or professional development, we have the ability to do this, and we will Thank you, Sima.

Our growth strategy surrounds four main pillars. Organic growth, strengthening and expanding geographic footprint, launch of new services, and potential M&A opportunities. Starting with organic growth, As Sima mentioned, we have been encouraging students to enroll in our portfolio training services to join the project-based track, which offers more flexible and customizable programs based on student needs. The overall strong enrollment trend that we're seeing in today's market is also exciting. We see more students from portfolio training services showing interest in our value-adding offerings, such as research-based learning and overseas study counseling services. resulting in increased student enrollment and hence increased revenue contribution. The engagement of our teaching staff in sales and product design process has also helped us improve program quality and boost sales. We have expanding training center coverage in existing cities and concentrated regional resources on larger centers. For example, we expanded our Shanghai and Beijing centers to serve more students during 2024. We recently opened the ACG London Center, extending ACG services to our students who have been admitted to UK colleges and are just embarking on their overseas life. At the London Center, we provide academic assistance, student and alumni networking events, as well as creative support, in addition to helping students settle down on their first few months of studying abroad. Innovation and introduction of new research-based learning programs have been crucial to growing that line of business. To that end, we actively invest and explore new trends in art, from computer-based arts majors such as digital arts, user interaction, gaming design, and AI-generated content, to new art themes and career options such as art therapists, green architecture and urban design, and so on. We continue to extend our global reach through growing our domestic and international network of institutional partnerships. In third quarter 2024, we signed a new institutional partnership with Leeds Conservatoire, a prestigious music conservatoire in the UK, whereby Leeds Conservatoire lecturers will work with ACG in providing applications, insights, and portfolio preparation tips to ACG students. In addition, we also recently initiated a strategic cooperation with Oasis Start Education Technology to jointly promote the integration of art and artificial intelligence. Utilizing Oasis Star's AI technologies and cloud platform, we expect to introduce AI support in upgrading our existing offerings and service delivery model, fueling our long-term growth via better products and services to our students. This October, we again hosted the United Nations Sustainable Development Goals Arts Bootcamp, marking the third section of this series since we initially introduced it this May. We also hosted our Shanghai Fashion Week program in October, bringing students to the forefront of fashion weeks for students interested in future study and career in fashion design and brand management. During October, ACG toured 10 cities in China as part of an awesome art education exhibition, inviting professors from institutions such as Rhode Island School of Design to give themes, speeches, and share application tips. and ACG alumni to share study experience and career advice. We remain focused on growing our student registration, expanding demographics from students who want to pursue overseas study opportunities to working professionals who look to expand their career opportunities, and to the general public who are willing to explore multiple topics of art. ACG's mission remains to act as a trusted partner for our students, regardless of where they are in the academic or career path. We're well equipped to do so, and we'll continue to invest in our infrastructure and the teaching team to always make high quality offerings available to our students. With that operator, 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. A confirmation tone will indicate you're in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, it is star 1 on your telephone keypad if you would like to ask a question. We will pause for a brief moment to see if any questions come in. Once again, it was star 1 on your telephone keypad. There are no questions at this time. I would like to turn it back over to Kevin for closing remarks.

directly to us or our investor relations firm, the Equity 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.