ATA Creativity Global

Greetings. Welcome to the ATA Creativity Global First Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. The 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 Allison of the Equity Group. Thank you. You may begin.

Thank you, operator. Good morning to all of you joining us from the United States and good evening to all of you joining us from China. Please be advised that the discussions on today's call may include forward-looking statements. Special 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 filing for a more complete description of these factors that could affect these projections and assumptions. The company assumes no obligation to update forelooking statements as a result of new information, future events, or otherwise. Regarding the disclaimer language, I would also like to refer you to slide 2 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. ACC's chairman and CEO, Mr. Kabama, will start this call by highlighting the company's first quarter 2025 key operational achievements and financial highlights. CFO, Mr. Rob Aizuma, will provide an overview of financial and operating results for first quarter 2025 and briefly discuss expectations for fall year 2025. 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. Please go ahead, Mr. Monk.

Thank you, Alice, and welcome, everyone. Good morning to those in America. We appreciate everyone's time. Q1 2025 was highlighted by April 6th increase in net revenue and gross profit respectively, driven by increased contribution from portfolio training and research-based learning service. Portfolio training program created an hour delivery to ACG students increased by 5.8% during the first quarter of 2025. Higher net revenues and slightly reduced operating expenses contributed to improved bottom-line results during the quarter as compared to Q1 2024. Moving on to first quarter operation highlights, portfolio trading services continued to account for the majority of our revenue for the quarter. Total credit and hours delivered increased by 5.8, with project-based programs contributing about 74% of total credit and hours delivered, translating into a 11.5% growth in revenue from the portfolio training programs. Combined revenues from the research based learning overseas studies concerning other educational services also increased by more than 28%, and it became an increased revenue contribution responsible for nearly 30% of total net revenues. During first quarter 2025, we brought a variety of in-person and online research-based learning projects to ACG students. In-person projects include a named campus to Hainan province and AI training campus at Alibaba, host to a United States and Japan online session week project entirely, engaging a total of more than 100 students. Apart from delivering our usual lambo for master class projects to students in an online group class format, we also hosted a creative arts therapy training program taught by University of London lecturers, which accommodated around eight students in total. We continue to receive a positive feedback from our students about the full 2025 admission results. During first quarter 2025, ACG students received numerous admissions from prestigious overseas institutions, including major legal schools. Other top schools' admissions, to name a few, came from Cambridge University, Hong Kong University, Nanyang Technological University, and so on. Also, our students have received offers from top art schools, some of which are the most popular major with extremely high application requirements and overall low acceptance rate, including the MFA in film and television production at the University of South California, architecture at UC Berkeley, and Engineering Design Innovation at Northwest University. We remain excited about the upcoming admission results for the remainder of the fall 2025 application season. We are proud to announce that on March 29, ACG was awarded the 2025 Forbes China Studying Abroad Leading Brand. along with New Oriental Education and New China International Education. On the 2025 International Education Leaders Annual Conference and the Forbes China Study Abroad Industry Selection Series Awards Ceremony, we are pleased that the campaign is recognized not only by students, but also by industry experts as a leading brand in technology generating positive outcomes for students who want to study art abroad. In March, ACG turned five key cities in China as part of our Spring Art Education Exhibition, including Beijing, Shanghai, Wuhan, Chengdu, and Chongqing. Similar to the October-Autumn Art Education Exhibition, we hosted to discuss the last arts design topics and observation of overseas study application changes and remission trends, giving participating students and parents a face-to-face opportunity to communicate with professors from prestigious overseas arts institutions. With that, I will hand over the call to Sima for first quarter 2025.

Thank you, Kevin. I will start with first quarter 2025 key financial metrics. Total net revenues for first quarter 2025 were RMB $35.8 million. an increase of 15.9% from RMB 48.1 million in fourth quarter 2024, which was primarily due to increased revenue contributions from portfolio training programs and research-based learning services, as we delivered more services and hosted an increased number of research-based learning experience. Growth profit for fourth quarter 2025 was RMB 25.4 million, an increase of 15.9% from RMB 21.9 million in fourth quarter 2024, primarily due to higher net revenues. Gross margin was 45.5% during fourth quarter 2025, and changed as compared to 45.5% in the prior year period. Total operating expenses was RMB 42.2 million in fourth quarter 2025, slightly decreasing from RMB 43.6 million in fourth quarter 2024. Viewed as a percentage of NAS revenue, total operating expenses decreased to 75.6% during fourth quarter 2025, compared to 19.6% in the prior year period. The slight decrease in operating expenses was due to an RMB 1.3 million decrease in selling expenses An RMB 0.3 million decrease in research and development expenses as ACG system development was completed in Q2 2024. And collection of previously impaired loans and other receivables offset by an RMB 4 increase in general and administrative expenses mainly related to the professional fees and the development of new projects. As a result of higher net revenues and slightly lower operating expenses, loss from operations in fourth quarter 2025 was RMB 16.8 million compared to RMB 21.7 million in fourth quarter 2024. Net loss attributed to ACG during fourth quarter 2025 was RMB 13.3 million compared to RMB 17.9 million in the prior year period. Moving to the balance sheet highlights, as of March 34, 2025, we have RMB 39.4 million in cash and cash equivalents. Total assets of RMB 457.3 million, total liabilities of RMB 390.9 million, and the total shareholders' equity of RMB 66.4 million. Moving to year-to-date enrollment trends, starting with student enrollment, For fourth quarter 2025, total student enrollment was 1,104, representing a decrease of 19.4% from the prior year period. The decrease in student enrollment was a result of normalized demand in our service in 2025 versus same period in 2024 and 2023. As we discussed in the fiscal year 2025 outlook last quarter, Portfolio training student enrollment for fourth quarter 2025 was 626, and student enrollment for all other programs for fourth quarter 2025 was 478. Moving on to credit hours delivered. For fourth quarter 2025, credit hours delivered slightly increased by 5.8%, driven by a 15.5% increase in project-based programs, which is recent years. have accounted for a continuously increasing percentage of total credit hours, and was partially offset by decreased time-based program credit hours. With that, let's move to our expectations for the full year 2025. We are expected to report total net revenues of between approximately RMB 276 million to RMB 281 million for the year end, December 34th, 2025. which represents a year-over-year increase of around 3% to 5% for full year of 2024. We anticipate the growth to be primarily driven by our portfolio training services and supported by all other lines of business. We remain prudently optimistic in our fiscal year 2025 guidance range, and these assumptions are based on the company's existing business, initiatives, and rates, for the year-end, December 34, 2025, and the current and primary view of existing domestic and international market conditions, which are subject to change. And now I'd like to turn it over to Jun, who will expand upon our long-term growth strategy. Jun, please go ahead.

Thank you, Siba. Next, I will talk about some of the recent implementation highlights of our long-term growth plan. In 2025, our focus will still be to promote organic expansion control costs, and increase overall operating efficiency. We will continue to work hard to increase the use rate of classrooms, provide higher-value courses, and strategically distribute marketing resources to communities that perform better to promote local sales, and meet the needs of new students. Over the years, the students' interest in our service performance and their trust in our cooperation have always motivated us to work hard to become the leading service providers in the field of creative art education. We are very proud to continue to improve the high-quality service for more and more students, and have always been enthusiastic about the Chinese creative art education market. In our four major growth initiatives, we expect that organic growth will lead to the long-term growth of ACG. Our service and product have always been deeply loved by ACG students. We continue to encourage students to choose more flexible and individualized projects in our works and training projects. We help students more effectively complete the creation of works and projects. The various new project courses we provide are becoming more and more popular. This is not only because we train students' innovative thinking through interactive learning environments, but also because these courses are flexible. More courses can be completed both on-site and online. Students who participate in the training service of works and projects also show their intense interest in our research and study projects. to make more contributions to our income growth. In addition, we also actively use the existing educational resources and self-employment services to meet the needs of more extensive student groups, to find opportunities for learning in art, study, workshop, and theme travel, and to provide services to the elderly and youth. In the first record of 2025, We have planned a series of high-quality research and development projects, including the Ghana Film Festival special tour, as well as a number of online master classes, covering stage design, interaction, test ship, jewelry design, and interaction with officials, and many other topics. We expect to launch more research and development projects in the third quarter to promote the continuous growth of the ACG business. In 2025, we will continue to expand our area of coverage. For example, we will expand our international partner network in the United Kingdom and the United States. This will help us to acquire more global resources and help more and more students who are exploring more study destinations, including Europe, Japan, and Southeast Asian countries such as Singapore. We believe that our economic advantage is built on the basis of long-term domestic and foreign partner relationships, which is formed by experienced internal education personnel and scholars from world-renowned universities. Thank you, Sima.

I will now discuss more recent execution highlights of our long-term growth initiatives. Our focus in 2025 remains to be driving organic expansion, controlling expenses, and improving overall operational efficiency. As part of the ongoing efforts to increase classroom utilization and provide higher value programs, we have started to strategically allocate marketing resources to higher performing campus locations, driving local sales where our teaching team can efficiently satisfy the growing demand of new students. For years, student interest in our services and the trust they have demonstrated during the time they work with us have encouraged us to work towards becoming a leading provider of creative arts education service. We're proud to be able to continue to make quality offerings accessible to a growing student population and remain enthusiastic about the creative arts education market in China. We expect our organic growth among all four growth pillars to lead ACG's long-term growth momentum. Our services and products continue to be highly valued by ACG students. We continue to encourage students to opt for the more flexible and personalized project-based track of our portfolio training programs, while helping students complete their portfolio creation projects more efficiently through mindful planning and intensified coaching. The variety of new project-based programs we're offering are gaining traction as we're fostering creative thinking via an interactive learning environment. but also due to flexibility, as many of these programs are completed in person and or online. Students enrolled in portfolio training services have taken on a growing interest in our research-based and overseas study counseling programs, contributing to a more substantial part of our revenue growth. On top of that, we're actively leveraging our teaching resources and our current portfolio of services to address our expended student base. serving older adults and younger generation who are looking for experiential learning opportunities in art studies, workshops, and theme travels. For second quarter 2025, we have a strong pipeline of new research-based learning projects lined up for ACG students. These include the Cannes Film Festival Tour and multiple online master class offerings covering stage design, digital media visual communication, jewelry design, and interactive sensation. We expect to launch more research-based learning experiences in the third quarter during the summer vacation, contributing to the continuous growth of ACG's business. Furthermore, in 2025, we'll continue to strengthen and expand our geographic footprint, for one, broadening our international partnership network outside of the UK and the US. This has helped expand our access to global resources. and assists an increased number of students who are now exploring study abroad options in more destinations, including Europe, Japan, and Southeast Asia, such as Singapore. We believe our competitive advantages are built on a long-term domestic and international partnership. Our highly devoted teaching team, which consists of experienced in-house teaching staff and lecturers from esteemed schools globally, and a continuous investment in introducing new offerings. With that, operator, let's open it up for questions.

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 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 star keys. One moment, please, while we poll for questions. Thank you. I'm showing no questions at this time. I would now like to hand the call back over to Mr. Kevin Ma for any 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 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.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.