ATA Creativity Global

Greetings. Welcome to ATA Creativity Global Third Quarter 2025 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 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 Tsang with the Equity Group. Thank you, Alice. You may begin.

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 its projections and assumptions. The company assumes no obligation to update forward-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 CFO, Mr. Rob Aizuma, will start this call by highlighting the company's third quarter 2025 key operational achievements and financial highlights, and then provide an overview of financial and operating results for third quarter and nine months 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 Sima. Please go ahead, Mr. Sima.

Thank you, Alice, and welcome, everyone, and good evening to those in America. We appreciate everyone's time. As Alice mentioned, please refer to our earnings index available on the IR side of our website, and we go through our prepared remarks. We reported relatively stable net revenue for third quarter 2025, while for nine months 2025, we delivered revenue growth for 7.1% as a result of increased contribution from research-based learnings, overseas daily counseling, and other educational services. During third quarter 2025, our main revenue contributors remained portfolio training services, accounting for 71.9% of total net revenues, project-based program credit hours delivered increased by 22.9% compared to third quarter 2024 and contributed to over 80% of total credit hours delivered. Revenues from research-based learning and overseas study counseling increased during the period compared to the prior year period. as a result of more searches delivered. During this summer, we had a series of online and in-person research-based learning experiences that accommodated over 500 students. These experiential projects included recruiting and new events. From online master classes to our U.S. Sustainable Goals Arts Bootcamp, a total of 14 summer labs lectured by instructors from prestigious schools in the U.K. and in the U.S. to our New York freshman week program. In addition, we co-developed an in-person 10-day summer lab with Hong Kong Polytechnic University, focusing on digital entertainment media design that was held on the PolyU camps. At this incentive summer lab, students gathered fourth-hand learning experience on state-of-the-art virtual reality and augmented reality technologies and walked away with their own design solutions and certificates of attendance issued by Purdue. After entering the registration period of the 2026 academic year, Our nationalized network of campus locations, as well as our ACG Beijing Foundation Center, continue to welcome and support new students who are exploring study abroad opportunities with our expanding services offering. Prepare them for the upcoming application season. I will now move on to a detailed overview of our financial and operating results for third quarter and nine months 2025. as provide some additional color expectations for fiscal year 2025, starting with third quarter 2025 key financial matrix. Total NAS revenues for third quarter 2025 was RMB 67.3 million, relatively stable as compared to the third quarter 2024. Growth margin for third quarter 2025 was RMB 26.4 million, compared to RMB 13 million in the third quarter of 2024. Affected by higher cost of revenues related to research-based learning services, outsourcing costs, and part-time teacher costs, growth margin was 39.2% during the third quarter of 2025, compared to 44.6% in the prior year period. Total operating expense was RMB 75,000. 37 million in the third quarter of 2025, a decrease of 22.4% from RMB 47.7 million in the third quarter of 2024. Well, as a percentage of net revenues, total operating expenses significantly decreased to 54.9% during the third quarter of 2025 compared to 70.9% in the prior year period. The decrease in operating expenses was due to an RMB 5.9 million decrease in sales expenses related to lower high counts in sales personnel. An RMB 4.8 million decrease in general and administrative expenses as a result of decreased professional fees and lower investment in new project development. Real research and development expenses remain relatively stable. As a result of lowering operating expenses, Loss from operating in third quarter 2025 narrowed to RMB 10.6 million, from RMB 17.6 million in the third quarter 2024. Net income attributed to ACG during third quarter 2025 was RMB 2.4 million, compared to net loss attributed to ACG of RMB 14.7 million in the prior period, primarily due to a one-time gain from previous investment. Turning to 9 months 2025, total net revenues increased 7.1% to RMB 179 million from RMB 167.1 million in the prior year period. The increase was primarily attributed to increased contribution from research-based learnings and overseas study couplings and other educational services. Growth progress for 9 months 2025 was RMB 80.1 million, an increase of 3.2% from RMB 77.6 million in 9 months 2024. As a result of increased revenues, it was partially offset by increased outsourcing costs during the period. Growth margin was 44.7% compared to 46.4% in 9 months 2024. Total operating expenses was RMB 121.3 million in 9 months 2025, a decrease of 11.2% 9% from RMB 137.7 million in 9 months 2024. As a percentage of NAS revenues, total operating expenses decreased to 67.8% from 82.4% in the prior year period. The decrease was primarily due to an RMB 9.8 million decrease in sales expenses. as a result of lowering high confidence sales personnel and decreased sales incentive compared to nine months, 2024. And then RMB 0.5 million decrease in research and development expenses, as well as RMB 2.3 million decrease in general and administrative expenses, reflecting of the accounting impact on purchasing price allocation from a previous completed acquisition. As a result of increased revenues and decreased operating expenses, loss from operations in 9 months 2025 narrowed to RMB 41.1 million compared to RMB 60 million in 9 months 2024. Net loss attributed to ACG in 9 months 2025 was RMB 21.7 million compared to RMB 49.4 million. Moving to the data sheet highlights, as of September 30, 2025, we had RMB 96.8 million in cash and cash equivalents, total assets of RMB 462.5 million, total liabilities of RMB 403.7 million, and total shareholder equity of RMB 58.8 million. Moving on to year-to-date enrollment trends, starting with student enrollment, For third quarter 2025, total student enrollment was 1,052 compared to 1,289 in the per year period, decreased as a result of normalized demand in our service in 2025. Portfolio training student enrollment for third quarter 2025 was 585. And the student enrollment for all other programs for third quarter 2025 was 467. Moving on to credit hour delivered. For third quarter 2025, credit hour delivered slightly increased by 5.6% compared to prior year period. We reported a 22.9% increase in project-based programs, which has become the primary student's choice As a result of our conscious efforts to encourage students to this more flexible and customizable track. With that, let's move to our expectation for full year 2025. We believe we are on track of achieving total net revenues of between 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% from full year 2024. We anticipate portfolio training to remain the main pillar of revenue 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 Relevant assumptions are based on the company's current business operations initiatives, the end rate for the year December 34, 2025, and the current and preliminary view of existing domestic and international market conditions, which are all subject to change. I would now like to turn it over to Jun, who will expand upon our long-term growth strategy. Jun, please go ahead.

Thank you, Sima. Next, I will talk about some of our long-term growth plans. For many years, ACG has always been looking forward to creative art education and the ability to bring positive results to students, and has been widely recognized by the industry and students. We are deeply proud of this. Our organic growth is based on providing courses that meet the needs and design them in a way that satisfies the needs of students' daily changes. Over the past few seasons, not only have we made efforts to focus on targeted services, but we have also actively optimized the product combination to ensure that it is always in line with the needs of the students, and thus continue to implement the core business principles. At the same time, we are working hard to expand our research and study services to increase the number of students of different ages and backgrounds. Our business growth is due to the persistence of high-quality product services and the interest of students in our growth and our products. This also allows our students to create extremely competitive product companies. At the operational level, ACG continues to explore the improvement of overall operational efficiency. The focus is on the detailed control of sales costs and strategic coordination of regional teaching resources. In the future, we plan to gradually integrate the market activity in the lower districts and continue to expand the capacity of online classrooms across the country. This strategy will be combined with machine design, game design, user interaction, and other academic acceleration to digitalize the transformation and trend of the technology drive mode. In the fourth quarter, we officially launched a new program London University of Fine Arts and the Royal Academy of Fine Arts have jointly developed online master classes. With the long-term partnership established by overseas universities and lecturers, we provide master class services to ACG students, allowing these students to explore user design, digital emotional language design, digital media, installation art, and other avant-garde art fields. As an important part of the immersive experience of International Fashion Week, we continue the traditional project in Shanghai Fashion Week, to participate in the full-scale learning experience of the brand from marketing strategy, film shooting, interview, to the whole case. As the leader of the Chinese creative art education service, we always strive to stimulate the potential of the students, to help them achieve academic and professional ideals, and to guide each student into the dream school. Looking forward to the remaining time in 2025 and 2026, we believe that the continued strategic investment Strict execution and high awareness of cost management will create sustainable value for the company. By balancing business expansion and operating efficiency, we hope that these measures will consolidate our market position, improve student results, and support long-term profit growth. In the development process, we ensure that we continue to deliver high-quality teaching services while expanding the scale, and maintain financial resilience in the market of dynamic competition, Thank you, Sun.

I will now discuss more recent execution highlights of our long-term growth initiatives. For years, ACG is proud to have been recognized by the industry and our students for our capability to drive positive outcomes for those interested in creative arts. Our organic growth is built on providing relevant and mindfully designed class offerings to satisfy our students' evolving needs. During the past quarters, in addition to our intentional efforts that led to project-based portfolio training service accounting for the majority of our credit hours delivered, we also actively took on approaches to ensure our product mixture keeps up with our students' demands, thus maintaining a high satisfaction level towards our main portfolio training services, the cornerstone of our key business. At the same time, we focused on expanding our research-based learning and overseas study counseling services, catering to a growing student population with an expanded age group and diverse arts backgrounds. Our business growth is driven by our commitment to delivering high quality portfolio training services and growing student interest in our value adding offerings that together contribute to a strong and competitive application portfolio. In the meantime, ACG has been exploring initiatives to improve overall operating efficiency, highlighted by our efforts to streamline selling expenses and the strategic reallocation of regional teaching resources. Going forward, ACG plans to gradually consolidate select campuses in less active markets, while continuing to expand online classroom capacity to accommodate our students across the country. This approach is especially relevant as many disciplines, such as computer design, gaming design, and user interaction, continue to evolve toward more digital and technology-driven formats. In Q4, we're introducing new online master classes, co-developed and lectured by instructors from Carnegie Mellon University, Harvard University, as well as University of Arts London and Royal College of Art. Through the long-term partnerships we have built with overseas schools and lecturers, We made these master classes available to ACG students, offering them the opportunity to explore emerging art topics such as user design, digital love language design, digital media prototype, and installation arts. As part of our fashion design programs that immerse students to fashion weeks all over the world for hands-on backstage experiences, we continue to host our traditional Shanghai Fashion Week project. Through this initiative, students gain first-hand exposure to the full spectrum of a brand fashion week activities, from marketing and photo shooting to interviews and full execution, providing a dynamic and comprehensive learning experience. As a leading provider of creative arts educational services in China, we are dedicated to empowering ACG students to achieve their full potential and realize their academic and professional goals, guiding and supporting them every step of the way toward a mission to their dream schools. For the remainder of 2025 and into 2026, we remain confident that our ongoing investments in strategic growth initiatives combined with disciplined execution and a strong focus on cost management will drive sustainable value creation for the company, but carefully balancing expansion with operating efficiency. We expect these efforts to strengthen our market position, enhance student outcomes, and support a long-term trajectory of profitable growth. Our approach ensures that as we scale, we continue to deliver high-quality educational services while maintaining financial resilience and operational agility in a dynamic and competitive 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 lightness 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. One moment while we poll for questions. There are no questions at this time. There are no further questions at this time. I would like to turn the conference back over to Mr. Sima for closing remarks.

Thank you, and 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 investors' relations and from the equity group. We are always available to speak to investors and look forward to speaking with you all during our next earning call. Thank you.

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