ATA Creativity Global

Thank you, operator. Good evening to all of you joining us from the United States, and good morning to all of you joining us from China. 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 risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information for 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 CFO, Mr. Robert Sima, will start this call by highlighting the company's key operational achievements and financial highlights for Sanger quarter 2025, and will provide an overview of financial and operating results for second quarter and first half 2025, and briefly discuss expectations for full 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 CFO, Mr. Roby Summa. Please go ahead, Mr. Summa.

Thank you, Alice, and welcome everyone. Good evening to those in America, and we appreciate everybody's time. As Alice mentioned, please refer to our earnings deck, available on the IR side of our website, and we go through our prepared remarks. Second quarter 2025 was marked by year-over-year increase in net revenues and growth profits. Growth in net revenues was mainly attributed to increased contribution from overseas daily counseling services, other educational services, and research-based learning services. Combined revenue increased by more than 50%. Continuing to fourth half 2025, we delivered strong growth for the six-month period. highlighted by a double-digit increase in both net revenues and growth profits. We always recorded growth across all business lines. Our value-added offerings, including research-based learning, overseas studies, counseling, and other educational services, were the primary drivers. Moving on to second quarter operational highlights. During second quarter 2025, our main revenues contributors were mine portfolio training services, accounting for 68% of total net revenues. Our project-based programs' credit hours delivered increased by 25.7% compared to the second quarter of 2024 and contributed to about 76.7% of total credit hours delivered. Revenues from research-based learnings, overseas study counseling, and other educational services accounted for an increasingly important part of net revenues. which grew by 54.2% compared to the prior year period as a result of more services delivered during the period. Despite Q2 normally being a slower quarter for its perennial offerings, we delivered a variety of high-quality research-based learning projects to ACG students, including several master classes and a new session of our signature program. The United Nations Sustainable Goals are Goals 10. In addition, we introduced Canada's Film Festival United Tour, bringing students interested in film production to the forefront of one of the world's most prestigious and influential film festivals from an immersive experience. They recorded significant revenue growth in overseas study counseling services. As a result, more services delivered. All students continue to explore study abroad options in world-class universities and colleges. For four 2025 admission results, we are more than expected to announce that ACG students have received more than 4,000 offers, and these offers and scholarships come from prestigious institutions across all of our six major art disciplines. Highlight results including offers in computer design at Cornell University and Carnegie Mellon University, architecture at Columbia University and Appen, music at the Royal College of Music and Leith Conservatory, film, games, and animation at California Institution of Art and Sheridan College, Fine Arts at Royal College of Art and SVA, as well as Fashion and Pattern School of Design and Central Science Martins College of UAL. We also have students being accepted into the Master of Art in Design Engineering a double major program co-designed by Brown University and Rhode Island School of Design, where students will have access to academic resources from both Ivy League schools and top art institutes. Moving on to the second quarter 2025 key financial metrics. Total net revenues for second quarter 2025 were RMB 55.9 million. an increase of 8% of RMB 51.8 million in second quarter 2024, which was primarily due to increased revenue contributions from overseas study counseling programs, other educational services, and research-based learning services. Growth profit for second quarter 2025 was RMB 28.3 million, an increase of 10.2% from RMB 25.7 million in second quarter 2024, primarily due to higher net revenues. Gross margin also improved to 50.6% during second quarter 2025, from 49.6% in the prior year period. Total operating expenses was RMB 42.1 million in second quarter 2025, a decrease of 9.4% from RMB 46.5 million in second quarter 2024. Realized the percentage of net revenues, total operating expenses decreased to 75.3% during second quarter 2025 compared to 89.8% in the prior year period. The decrease in operating expense was due to an RMB 2.6 million decrease in sales expenses related to lower headcounts in sales personnel and decreased sales incentives. An RMB 1.5 million decrease in general and administrative expenses as a result of decreased professional fees, as well as RMB 0.3 million decrease in research and development expenses as the ACG system development was completed in Q2 2024. As a result of higher net revenues and slightly lowered operating expenses, loss from operational in second quarter 2025 narrowed to RMB 13.7 million from RMB 20.8 million in second quarter 2024. Net loss attributed to ACG during second quarter 2025 was RMB 10.8 million compared to RMB 16.8 million in the prior year period. During the fourth half of 2025, Total net revenues increased to 11.8% to RMB 100 and 11.7 million from RMB 99.9 million in the prior year period. The increase was primarily attributed to increased contributions from research-based learnings and overseas study counseling and other educational services. Growth profit for fall top 2025 were RMB 53.7 million. an increase of 12.8% from the RMB 147.6 million in fourth half 2024. As a result of increased revenue during the full period, growth margin also improved to 48.1% from 47.7% in fourth half 2024. Total operating expenses was RMB 84.3 million in fourth half 2025. a decrease of 6.4% from RMB 90.1 million in the fourth half of 2024. We will add the percentage of net revenues. Total operating expenses decreased to 75.5% from 90.2% in the prior year period. The decrease was primarily due to an RMB 3.8 million decrease in sales expenses as a result of lower high cost in sales personnel and decreased sales incentives compared to fourth half of 2024, and an RMB 0.6 million decrease in research and development expenses, and was partially offset by RMB 2.5 million increase in general and administrative expenses related to development of new projects carried out in fourth quarter 2025. As a result of increased revenues and decreased operating expenses, Loss from operations in fourth half 2025 narrowed to RMB 30.5 million compared to RMB 42.4 million in fourth half 2024. That loss attributed to ACG in fourth half 2025 was RMB 24.1 million compared to RMB 34.7 million. Moving to the balance sheet highlights, as of June 30, 2025, we had RMB 34.7 million in cash and cash equivalents, total assets of RMB 444.2 million, total liabilities of RMB 388.4 million, and total shareholders' equity of RMB 55.8 million. Moving on to year-to-date enrollment trends, starting with student enrollment, For second quarter 2025, total student enrollment was 1,050, decreased by 3.1% from the prior year period. The decrease in student enrollment was the result of normalized demand in our service in 2025 versus the rebound of student demand in 2023 and fourth half of 2024. Portfolio training student enrollment for second quarter 2025 was 556, and student enrollment for all other programs for second quarter 2025 was 494. Moving on to credit hours delivered. For second quarter 2025, credit hours delivered slightly increased by 0.3% compared to prior year period. We reported a 25.7% increase in project-based programs. which in recent years have accounted for a continuously increasing percentage of total credit hours due to their flexibility and customization by design. And growth in total credit hours delivered was offset by decreased time-based program credit hours as a majority of newly enrolled students opt for the project-based track. With that, let's move to our expectation for full year 2025. We expected to report the total net revenues of between approximately RMB 276 million to RMB 281 million for the year ended December 34, 2025, which represents a year-over-year increase of around 3% to 5% from full year 2024. We anticipate paid portfolio training to remain the main pillar of revenues accompanied by increased contributions from all other lines of business. As we continue to improve current offerings and introduce new programs, our fiscal year 2025 guidance range and related assumptions are based on the company's current business options initiatives and the rate for the year-end, December 34, 2025, and the current and preliminary view of existing domestic and international market conditions, we are all subject to change. 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. Next, we will talk about some recent implementation highlights of our long-term growth plan. As a provider of high-quality creative education services, we are full of confidence in our own market position. Although the demand for G2 has increased after the start of the year in 2024, we believe that we are well prepared to achieve the expected growth and will continue to be a trustworthy partner for our students. In the following years of 2023, Our finance and operations will focus on increasing the profit level, promoting the organic growth of all business lines, strengthening cost control, and improving overall efficiency. Organic growth is still the core of our business expansion. We are proud of the quality and value of the work and teaching services and services provided to ACG students. and understand that these products need to be constantly improved and improved, and at the same time, introduce new services and courses to meet the needs of students who are constantly changing. As we have discussed in the past few episodes, under our continued promotion, project-based courses have become the main contributors to our performance and service revenue. Our students also praise this high-efficiency, flexible, and flexible course model based on their own needs and application timetable. We are trying to meet the needs of diverse students. These students have different backgrounds, and have different knowledge and experiences in the field of art. The expansion of our student group not only covers the elderly and the young, but also students from different backgrounds with cross-disciplinary comprehensive skills. Our task is to help students better show their artistic ability, breadth and depth when applying for the master's degree. Our professional, hardworking, and capable team has made it possible for us to successfully complete this task. At a time when competition is so intense around the world, from the moment when students start considering studying abroad, we help students prepare in advance and plan a flexible and long-term development path. In the summer of 2025, we will launch a series of exciting new research projects for ACG students. which includes our regular and regular activities, such as going to research camps in Japan and the United States. There are also two domestic research projects with the theme of China's non-material cultural heritage, which are in Dunhuang, Gansu Province and Chuanxi Province. In addition, we also held a variety of master courses in many art fields in Beijing. The lecturers are all from well-known international universities, such as Ma Seng Li Academy, University of Yale, University of South California, and University of New Zealand. In the third quarter of 2025, we will also launch a few new themed research projects to further enrich our course content and enhance the students' experience, including the Singapore School of Fine Arts, the Boca Li School of Music and Performing Arts, and the Harvard University and the United Nations Education and Culture Organization's joint development of the ACG's exclusive Harvard Electronics Laboratory. In addition, for the students' interest in practical science, we are planning and promoting new projects that are in line with the long-term career development path. For example, projects related to the design of the machine, and projects with cross-technology characteristics. In 2025, we will continue to consolidate and expand our area of coverage in the field, and expand it in the global scope. Our international partner network is an ongoing strategy of ASE, especially in areas where students' interest is growing day by day. In addition to traditional popular countries such as the United States and the UK, we also noticed that more and more students applied to top schools such as South Korea and North Europe. In addition, there are also relatively mature and well-known areas such as Australia, France, Italy, Japan, and Singapore. Our current strategy includes We will continue to distribute marketing resources to more outstanding communities. In addition, we have further explored and adopted more methods to optimize our business process. In the second half of the year, we hope to continue to promote cost control, including maintaining a simple sales team, and adopting a channel for students with high cost-effectiveness, such as online marketing on the cooperation platform. In addition, we have also started to organize online group classes in areas such as Beijing to maximize the use of classroom resources. These courses will be taught by the most welcome teachers and provide the best online support to more students all over the country to help them complete their works and create and apply. These measures have reduced the cost of training. We believe that in the next two years, this will be an effective way to increase the company's profits. Thank you, Sima.

I will now discuss some recent execution highlights of our long-term growth initiatives. We remain confident in our market position as the leading provider of high-quality creative arts education services. While we see intensified competition this year after the release of pent-up demand in 2024, we believe we're well-positioned to achieve expected growth and continue to be a trusted partner to our students. Our financial and operational focus for the remainder of 2025 is on driving organic expansion across all lines of business and enhancing cost discipline and overall efficiency to improve bottom line results. Organic growth remains at the core of our business expansion. We take pride in the quality and value our portfolio of offerings provide with ACG students. And keep in mind that these offerings are to be continuously improved and supplemented with new services and classes that address evolving student demands. As we have discussed over the past quarters, our project-based programs have become a dominant contributor to our portfolio training services with a conscious effort. And our students have expressed their appreciation towards this efficient, flexible, and customizable track, which can be easily adjusted based on students' needs and application timelines. We're catering to a growingly diversified student population with different backgrounds and all levels of knowledge and experience in their interested art majors. The expansion of our student base is not limited to reaching older adults and younger generations, but also includes supporting a growing number of students who come from different arts backgrounds and possess hybrid skill sets across disciplines. Our job is to help students amplify how they demonstrate both the breadth and depth of their artistic capabilities in their application portfolios, and our strong, knowledgeable, and competent teaching team enables us to excel in this job. In a time of increased global competition, we help students plan for early preparation, building flexible and long-term pathways from the moment they begin exploring the idea of studying arts abroad. For summer 2025, we have an exciting pipeline of new research-based learning projects for ACG students. These include our regular recurring offerings, such as the summer school camps to Japan and the U.S., Two domestic-themed travel programs focused on Chinese intangible cultural heritage in Dunhuang, Gansu Province and West Sichuan Province, as well as various in-person sessions of master classes in Beijing, featuring a wide range of arts topics taught by lecturers from reputable international colleges, including MIT, Yale University, University of Southern California, and Oxford University. In third quarter 2025, we also launched several new themed travel programs to further diversify our offerings and enhance student experience, which include the Singapore Top School Art Study Camp, Berkeley Music Performance Intensive Camp, as well as an ACG-exclusive Harvard University Studio for Electroacoustic Composition Summer School, co-developed with Harvard University and UNESCO. Additionally, in response to the evolving student interest in career-oriented and practical disciplines. We're planning and launching more new projects and experiences that align with long-term career paths, such as those with a focus on container design and or those that are interdisciplinary. In 2025, we will continue to strengthen and expand our geographic footprint. Expanding our international partnership network across the globe is an ongoing strategy of ACG. especially in the regions where we observed growing student interest. Besides traditionally popular countries like the US and the UK, we have noticed more students applying to top schools in South Korea and Northern Europe, alongside slightly more developed and better known markets such as Australia, France, Italy, Japan, and Singapore. We have explored and deployed additional approaches to streamline our business following the existing initiative to strategically allocate marketing resources to higher performing campus locations. For the remainder of the year, we hope to continue implementing cost-conscious methods, which include maintaining a lean sales team and using cost-efficient student acquisition channels, such as online marketing on partner platforms. In addition, We have begun organizing online group classes led by our most popular teachers in regional centers like Beijing to maximize classroom utilization, giving more students across the country access to best-in-class support in profile creation and application counseling. These initiatives have led to reduced operating expenses and we believe will serve as effective ways to improve our borderline for the rest of 2025. In the balance of 2025, we remain focused on driving success for our students by helping them achieve their full potential. We're optimistic that we'll finish the year with a strong note and believe that our competitive advantages and the execution of multi-track growth strategies will continue to strengthen our role as a leading player in China's creative arts education market. 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 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 while we poll for questions. There are no questions at this time. I would like to turn the conference back over to Mr. Suma for closing remarks.

...to us or our investor relations from the exit 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.