ATA Creativity Global

Global fourth quarter and year end 2024 financial results. 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, 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. 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 discussion 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 risk factors that could affect these projections and assumptions. The company assumes no obligation to update forwarding 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 fourth quarter and four-year key operational and financial achievements. CFO, Mr. Robai Sima, will provide an overview of financial and operating results for fourth quarter and year in 2024 and briefly discuss 2025 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 accompanying slide presentation, please refer to the slides for further details. With that, I'll turn the call over to ACG's Chairman and CEO, Mr. Kevin Ma. Please go ahead, Mr. Ma.

Thank you, Alice. Welcome everyone to Lucy America. We appreciate everyone's time. As Alice mentioned, please refer to our early stage available on the RR site of our website. as we go through our prepared remarks. During 2024, with the mission of driving positive student outcomes in mind, ACG continued to concentrate on making college educational services available to our students. Our investment in the teaching team allowed us to introduce related and customized offerings, and our efforts to expand and maintain institutional partnerships expanded their access to world-class educational resources. We also actively explored new ways to improve overall operations efficiencies, from streaming operations and locating regional resources to initiate the integration of AI technologies into our services, which we believe will continue to drive long-term value to our operations. The fourth quarter of 2024 was highlighted by significant growth in net revenues and bottom-line results. We reported more than 20% increase in net revenues, driving a similar level of improvement in our gross profit. For federal training programs, credit dollars delivered to ACH students increased by over 35% during the fourth quarter of 2024. As a result of increased revenues, net income attributable to ACH growth by to revenue of 13.3 million. Similarly, for the full year 2024, we reported strong net revenue growth of 21%, exceeding the high end of our full year values, which resulted in a 23.2% increase in growth and our core business portfolio training service recorded a significant increase in student elements as well as creating our deliveries. Moving on to fourth quarter operation highlights, portfolio training service accounted for the majority of our revenues for the quarter, with project-based programs contributing to 66.8% of total credit now are delivered. The demand for our portfolio training service demand is strong and we were pleased that we have been able to address this demand with a teaching team that students trust. We organized small group classes which allowed more students to take lessons for popular teachers has increased creating hours delivered with enhancing teaching efficiencies at the same time. Revenues from rich-based learning, overseas study, counseling, and other educational services all increased by more than 40%. The hosted October session of the United Nations September Development Goals Arts Bootcamp. our Shanghai Fashion Week program, and several master classes covering arts topics like character, animation, visual communication, and interior design. As we enter the 2025 application season and many of our students have submitted to the application portfolio to overseas schools, we are glad to share that our So far, our students have received offers and scholarships from schools such as Cornell University, Columbia University, Rhode Island School of Design in the United States, and the University of the Arts London, University College London in the UK, as well as prestigious art schools in Japan, Hong Kong, and Australia. At the same time, we continue to expand our partnership base. and we began providing educational service to two additional higher education institutions, the Central Academy of Drama and the Nanjing University of Art. During the quarter, we made this strategic decision to discontinue our junior art service, aiming to increase the overall efficiency of our operations, which contributed to a larger and they expect during the quarter. With that, I will hand over the call to Sumar for the overview of our financial and operating results for fourth quarter of the full year 2024 and provide some call-out on our guidance for fiscal year 2025.

Thank you, Kevin. And I will start with fourth quarter and full year 2024 key financial metrics. Total net revenues for fourth quarter 2024 was RMB 109 million, an increase of 20.7% from RMB 83.6 million in the fourth quarter 2023, which was primarily due to increased revenue contributions from portfolio training programs, research-based learning, and overseas study counseling services. Growth profit for fourth quarter 2024 was RMB 63.7 million, an increase of 21.6% from RMB $52.4 million in fourth quarter 2023, primarily due to higher net revenues. Growth margins slightly increased to 63.1% during fourth quarter 2024, compared to 62.6% in the prior year period, mainly as a result of higher net revenues despite an increase in costs associated with more teaching staff hired as compared to fourth quarter 2023 to accommodate increased numbers of buildings. Total operating expenses was RMB 46.8 million in fourth quarter 2024, an increase of 8% from RMB 43.3 million in fourth quarter 2023. The increase was primarily due to an RMB 6.8 million increase in selling expenses related to increased number of sales personnel and marketing events in various different channels, which was partially offset by RMB 2.4 million bitcoins in general and administrative expenses, mainly as a result of the disposal of ACG's junior hour services in fall 2020-2024, and RMB 0.9 million bitcoins in RMB expenses as ACG's system development was completed in Q2 2024. Income from operating in fourth quarter 2024 was RMB 17 million compared to RMB 9.1 million in fourth quarter 2023. Next income attributed to ACG during fourth quarter 2024 was RMB 13.3 million compared to RMB 8.6 million in the prior year period. Turning to full year 2024, total net revenues increased to 21% to RMB 268.1 million from RMB 221.6 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 target for full year 2024 was RMB 141.3 million. an increase of 23.2% from RMB 114.7 million in full year 2023. As a result of increased revenues during full year 2024, growth margins slightly improved to 52.7% from 51.7% in full year 2023. Total operating expenses were RMB 184.5 million in full year 2024, an increase of 18.1% from RMB 156.2 million in full year 2023. The increase was primarily due to a RMB 21.2 million increase in sales selling expenses as a result of the extension of our sales team and an increase in marketing events such as the art education exhibition and fusion art exhibition. as well as RMB 8.1 million increase in general and administrative expenses related to increase professional fees and business pension related investments and was slightly offset by lower research and development expenses which decreased by RMB 0.9 million. Law firm operations in full year 2024 was RMB 43 million compared to RMB 41.5 million in the full year 2023. Net loss attributed to ACG full year 2024 was RMB 36.1 million compared to RMB 33.7 million. Move to the balance sheet highlights. As of December 34th, 2024, we had RMB 36.5 million in cash and cash equivalents. Total assets of RMB 456.9 million. Total liabilities of RMB 377.3 million. and total shareholders' equity of RMBs, 79.6 million. Moving on to year-to-date enrollment trends. For full year 2024, total student enrollment increased by 15.8% as compared to full year 2023, supported by strong student interest growth in both ACG's portfolio training and other programs. Portfolio training students' enrollment for full year 2024 increased by 12.9% to 2,807, and all other program students enrollment for full year 2024 increased by 20.2% to 1,974. For full year 2024, continued to record higher credit hours delivered from the second half of the year. Similar to prior year results, as our students started to prepare for portfolio work, For full year 2024, credit hours delivered significantly increased by 30.8%, whereby time-based program credit hours increased by 32% and project-based programs credit hours increased by 30.2%. With that, let's move to guidance for the full year 2025. ACG expects to achieve total net revenues of between approximately RMB 276 million to RMB 200 $81 million for the year end at December 34, 2025, which represents a year-over-year increase of around 3% to 5% from the full year 2024. We anticipate that growth to be primarily driven by our portfolio training services, which is also significantly students' acquisition channels for all of our other business. As more students sign up for our services, We hope in full year 2024, we saw double digits revenue growth and overall increased demand across our business line following the COVID-19 international traveling recovery. We expect full year 2025 growth to return to normalized levels, and we expect our business to record continuous growth and believe that strategy initiatives that we are implementing. We assume we'll expand on it a bit, will drive our long-term growth in and beyond 2025. I'd like to turn it to Jun, who will expand upon our long-term growth strategy. Jun, please go ahead.

Thank you, Sima. As of 2025, our goal is to become China's leading creative arts education service and product operator. We will provide services and products to students who are interested in creative arts education and profession. We believe that our long-term growth comes from organic growth, distribution of land, strengthening and expanding, the launch of new services and the potential purchase opportunities. We observed a strong growth trend in the service and internal sales data provided by the students. This strengthens our confidence in the IT industry and the Chinese creative art education market. We expect that our organic growth will receive more income and high-profit service support. First of all, we encourage students who are interested in workbooks to apply for project management services. Because of its flexibility, it provides higher value services than classroom management. In addition, we believe that students' active feedback on our core workbooks will drive their interest in other services, such as research and study services. With the investment of our first-tier teachers and sales teams in design courses, We believe that our ability to introduce new and unique research and development projects and students' interest in our study services will continue to promote income growth and increase the profit margin. In 2025, in order to strengthen and expand our geographical footprint, HG will continue to expand its coverage area in existing cities and strategically locate our regional resources to develop businesses with the largest and most limited center. In January 2025, ACG announced the opening of the ACG Japan Center. The center focuses on Japanese training and art education. At the ACG Japan Center, we provide online and face-to-face language training services to help students settle down after arriving, prepare for future learning, and provide tutoring students to apply for works and organize various art activities. The ACG Japan Center was established in September 2024 After the opening of the London Center, the London Center has been actively providing services to students in London and surrounding areas. We are committed to helping students achieve their goals and become a trustworthy partner in their ACG learning process. We are committed to innovation and introducing new research projects. These new projects are gradually becoming an important part of our income source. Since the beginning of 2025, we have launched various projects in offline and online forms, for different age groups, different medical backgrounds, and professional students to provide services. These projects include the art therapy creative camp led by the lecturer at London University, the Japanese animation classic 3 depth camp held in Tokyo, the environmental creative design camp in Sanya, Hainan, and the wild animal photography creative camp in Dongfei, the Milan fashion week project, the art museum in Tengxiao, the US East, and the international AI practice camp in Ali. Finally, ACG is still working hard to actively explore the potential of 2025 to supplement our service group of creative art education products that provide quality for students. Providing the best service for students is the core of our business, especially when we continue to expand the number of students and meet the needs of students who are constantly changing. We are excited about the growth of 2025 and believe that our investment in the education industry Thank you, Sima.

For 2025 and beyond, our goal remains to be a leading provider of creative arts education services and products in China to students interested in a creative arts education and career. We believe our long-term growth is fueled by organic growth strengthening and expanding geographic footprint, launch of new services, and potential M&A opportunities. The strong growth trend we observed in student enrollment and services delivered, as well as in our internal sales records, have reinforced our confidence in the ACG's business and the market potential of the creative arts education in China. We expect our organic growth to be supported by higher fee and higher margin services. For one, encouraging students interested in our portfolio training services to enroll in a project-based track, which offers higher value services compared to time-based programs due to its flexibility and customizability. Furthermore, we expect positive student feedback on our core portfolio training services to drive increased interest in our other services, such as research-based learning and overseas study counseling services. With our frontline teachers and sales teams' input into designing our course offerings, we've released our capabilities to introduce new and unique research-based learning experiences and a growing student interest in our overseas study counseling services. We'll continue to fuel revenue growth and gross margin improvement. For 2025, to strengthen and expand our geographic footprint, ACG will continue to expand coverage in existing cities and strategically locate our regional resources to maximize operations at larger centers. In January 2025, ACG announced the grand opening of our ACG Japan Center, which focuses on Japanese language training and arts education. At the ACG Japan Center, we provide both online and in-person language training services and help students settle down after they arrive for their future study, as well as tutoring students on their application portfolios and hosting various arts events. The opening of the ACG Japan Center follows the opening of our London Center in September 2024, which has since been actively serving students in London and surrounding areas. We're committed to helping students achieve their goals as a trusted partner throughout their journey with ACG. We have invested in the innovation and introduction of new research-based learning projects, which have become an increasingly substantial part of our revenue source. Since the beginning of 2025, we have introduced various experiences in both in-person and online formats, serving students of different age groups and with various arts backgrounds and majors. These programs included Creative Arts Healing Training Program, led by University of London lecturers, Japanese Classic Animation Study Tour in Tokyo, Sea Island Environmental Protection Creative Arts Camp in Sanya, Hainan Province, Safari Photography Creation Camp in East Africa, Milan Fashion Week Internship Program, Ivy League Art Campus Tour in East Coast of the US, and Alibaba Artificial Intelligence Training Camp. Last but not least, ACG remains diligent in actively exploring potential M&A opportunities in 2025. to supplement our service portfolio of high-quality creative arts education products to our students. Serving our students with the best offerings is at the core of our business, especially as we continue to expand our student population and address the evolving needs of our students. We're excited about our growth in 2025 and believe our investment in our teaching team and the strategic initiatives we take to improve operating efficiency will continue to drive results for ACG and our shareholders. With that, operator, let's open it up for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. We will pause for a brief moment to poll for questions. There are no questions at this time. I would like to turn the conference back over to Kevin for closing remarks.

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 investor relations from the ACT Group. We're always available to speak to investors and look forward to speaking with you all during our next hearing 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.