ATA Creativity Global

Greetings. Welcome to ATA Creativity Global fourth quarter and year-end 2025 financial results call. 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 Allison for the equity group. Please proceed.

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 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 two of the conference call presentation, which is accessible via the IR section of ACG's website. 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 by highlighting the company's fourth quarter 2025 key operational achievements and financial highlights. Therefore, Mr. Rob Aitsuma will provide an overview of financial and operating results for fourth quarter 2025 and four-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 Ma. Please go ahead, Mr. Ma.

Thank you, Alice. And welcome, everyone. Good evening to the seeing Americans. We appreciate everyone's time. As Alice mentioned, please refer to our early stick available on the IR site of our website. as we go through our prepared remarks. As we have discussed in previous quarters, 2025 overall students demand to normalize the following student elements in the previous year, while we report lower total revenues during fourth quarter 2025 as compared to the same period of last year. Revenues from research-based learning and other educational services increased year over year, primarily as we hosted more projects and provided more service to institutional partners in fourth quarter 2025 due to cost saving initiatives we have been implementing and resulting streamlined operations compared to fourth quarter 2024. We reported 15.7% lower operating expenses, including a one-time goodwill impairment charge in Q4 2025. For fiscal year 2025, despite the overall normalized the marked demand, the total revenues were stable, supported by our core portfolio training services, and increased the contribution from research-based learning, overseas study concerning and other educational service. Full year 2025 was also marked by lowered operating expenses as compared to full year 2024. During fourth quarter 2025, our main revenue contributor remained the portfolio training service, accounting for 68.8% of total net revenue. Project-based programs have become the main choice for our students, accounting for 74.9% of total credit hours delivered. with 66.8% in fourth quarter 2024. Revenues from research-based learning and overseas study concerning increased by 4.6% during fourth quarter 2025 as a result of more service delivered for in-school art classes in partnership with schools. During fourth quarter 2025, our highly divided by research-based learning services continued to get student interest, especially during the winter vacation when students have the time to participate in more intensive projects, either in person or online. As usual, in addition to our open-hug Shanghai Fashion Week project, we hosted 10 online masterclasses covering a wide area of art topics, given by lecturers from top universities, including Carnegie Mellon University, Harvard University, as well as the University of London Royal College of Art. We also made continuous investments to ensure ACG students had access to world-class educational infrastructure and academic resources, when preparing for Overseas Studies Journals. In October, we hosted the 2025 ACG Experts Tour in several cities, bringing academia and industry experts to Shanghai, Wuhan, Chengdu, Chongqing, and Suzhou to site a face-to-face with over 1,000 students. Experts gave lectures on industrial and academic trends interdisciplinary design and main leader with 30 students one-on-one, providing feedback on their artwork and application portfolios, and sharing their input in career planning. During quarter four, 2025, we established the SAG's first music preparatory center in Tendu, Working in exclusive partnership with Leeds Conservatory, which is the first and only music-focused preparatory center in collaboration with overseas institutes to provide a one-year intensive study program before students head to the UK to finish their bachelor degree. We also implemented a series of service enhancements to our existing SEG Japan Center, which now hosts more master class projects and provides improved class offerings and courses, customization, working in collaboration with more Japanese arts schools. Additionally, we began providing services to more institutional partners, contributing to increased revenues from other educational services. With that, I hand over the call to Sima for a detailed overview of our financial and operating results for fourth quarter and the full year 2025.

Thank you, Kevin. And I will start with fourth quarter 2025 key financial metrics. Total net revenue for fourth quarter 2025 was RMB 89.1 million. decreased 11.7% as compared to the fourth quarter of 2024. The decrease was primarily due to decreased revenue contributions from portfolio trading programs and overseas study counseling services, partially offset by increased revenue contributions from research-based learning services and other educational services. Gross profit for fourth quarter 2025 was RMB 60.2 million, compared to RMB 63.7 million in fourth quarter 2024. affected by lower revenues and higher costs of revenues related to research-based learning services, outsourcing costs, and part-time teacher costs. Growth margin was 56.4% during the fourth quarter of 2025, compared to 63.1% in the prior year period. Total operating expenses was RMB 73.3 million in fourth quarter 2025, compared to RMB 46.8 million in fourth quarter 2024. Increased primarily as a result of one-time goodwill impairment charge for RMB 33.9 million, or US dollar 4.8 million, recorded in Q4 2025, which was not recorded in Q4 2024. And partially offset by an RMB 7.4 million decrease in sales expenses related to lower headcounts in sales personnel, and decreased sales incentives during the period. Excluding the one-time goodwill impairment charge, total operating expenses decreased by 15.7% from fourth quarter 2024, and as a percentage of net revenues, decreased to 44.2% during fourth quarter 2025, compared to 46.3% in the prior year period. As a result, loss from operations in fourth quarter 2025 was RMB 23 million, compared to income from operations of RMB 17 million in fourth quarter 2024. Net loss attributed to ACG during the fourth quarter 2025 was RMB 26.3 million, compared to the net income attributed to ACG of RMB 13.3 million in the prior year period. During the full year 2025, total net revenue was RMB 268.1 million, flat from prior year period. Revenue was impacted by lower contributions from portfolio trading services. and offset by increased contributions from research-based learning and hourly study counseling and other educational services. Growth profit for full year 2025 was RMB 130.3 million, a decrease of 7.8% from RMB 141.3 million in full year 2024. As a result of increased outsourcing costs during the period, growth margin was compared to 52.7% in full year 2024. Total operating expenses for RMB 194.6 million in full year 2025, an increase of 5.5% from RMB 184.5 million in full year 2024. Increase in operating expenses during the year was primarily due to a one-time goodwill impairment charge of RMB 33.9 million recorded in Q4 2025, will partially offset by lower operating expenses and RMB 3.8 million collection of privacy impaired loans and other receivables recorded in Q1 2025, excluding the one-time goodwill impairment charge and collection of privacy impaired loans and other receivables Total operating expense decreased by 10.8% from full year 2024. And asset percentage of net revenues decreased to 61.3% from 68.8% in the prior year period. We recorded an RMB 17.3 million decrease in sales expenses as a result of lower headcounts in sales personnel and decreased sales incentives compared to full year 2024. An RMB 2.1 million decrease in general and administrative expenses, mainly as a result of decreased administrative personnel expenses and a decrease in amortization expenses related to purchase price accounting from a previous completed creation, as well as RMB 0.6 million decrease in research and development expenses. As a result, loss from operations in full year 2025 was RMB 60, 4.1 million compared to RMB 43.2 million in full year 2024. Net loss attributed to HCT in full year 2025 was RMB 48 million compared to RMB 36.1 million. As a result of winged operating loss and was partially offset by a one-time impairment gained from previous investment. Moving to the balance sheet highlights, as of December 34th, 2025, we had RMB 85.2 million in cash and cash equivalents, total assets of RMB 408.3 million, total liabilities of RMB 376.3 million, and total shareholders' equity of RMB 32 million. Moving on to year-to-date enrollment trends. Starting with student enrollment, for fourth quarter 2025, total student enrollment was 921 compared to 1,038 in prior year period, decreased as a result of normalized demand for our service in 2025. For follow-through student enrollment for fourth quarter 2025 was 568, and student enrollment for all other programs for fourth quarter 2025 was 363. Moving on to credit hours delivered. For fourth quarter 2025, total credit hours delivered decreased by 10.5% compared to prior year period. Project-based programs accounting for 74.9% of total credit hours delivered. With that, I will now turn it over to Jun, who will expand upon our long-term business strategy. Jun, please go ahead.

Thank you, Sima. Today, I would like to introduce ACG 2020.

Our business strategy in 2020 and the future, even if the competition is fierce in the market, our goal is still to maintain the leading position in the field of creative art education in China. On the one hand, we believe that our competitive advantage is due to the excellent and experienced teaching team, high-quality new and old service product combinations, and the extensive global cooperation network established by the top art schools. Our teaching team has excellent academic and industry practical experience, so that we can provide both creative and practical services. At the same time, wide-ranging volunteer cooperation provides students with a broader international vision, more opportunities for learning, and a smoother path to world-class art projects. These advantages are the basis for ACG's continued development and development in the field of creative education. On the other hand, while our plan continues to carry out current operations and forecasts, we will launch more projects to reduce costs and reduce the cost of operation. For this, we are optimizing the service group. By expanding online courses, we increase the capacity of students to improve the teaching efficiency. We will open more online courses, which will increase the number of students. We will strategically integrate sales and teaching resources into larger schools, and merge lower-level schools to maximize the effect. In addition, we are in the process of The priority is to adopt a highly effective and experienced voice channel that has been verified. In general, these measures will establish a good foundation for our overall operation and financial performance improvement in the future. In the first quarter of 2020, we have a rich set of research and learning projects. One of the highlights is the Finland Sustainable Design Arts Research Camp. The east camp provides opportunities for students to participate. to visit Ertuğrul University, one of the world's top design, architectural and engineering universities, and to participate in the sustainable development研究會 at the Beijing Center, to learn about the culture of Beijing and Sarnia, to create hand-made carvings and carvings, and so on. In order to meet the students' interest in all kinds of competition, we held a joint event in January. In 2026, the competition will include including face-to-face fashion design, digital design, future architecture, and other professional-oriented student training camps. Through the customized courses provided by ACG teachers and the guidance of hand-in-hand, students can participate in the preparation of domestic and foreign competitions, and strengthen their personal works and competitiveness. These combined needs, design experience, and interaction with new projects, along with our continuous work and service, have shown that we are pursuing our dreams for ACG students in the field of creative art, Thank you. ACG business strategy in 2026.

In 2036 and beyond, our goal is to maintain our leading position in China's creative arts education industry despite increased market competition. On one hand, we believe our competitive advantages are rooted in our skilled and highly experienced teaching team, our strong portfolio of high-quality existing and new offerings, as well as an extensive network of global partnerships with leading arts institutions. Our teaching faculty brings together academic excellence and real-world industry experience, enabling us to deliver education that is both creative and practical. Meanwhile, our broad institutional collaborations provide students with greater international exposure, enriched learning opportunities, and smooth pathways to top global arts programs. Together, these strengths form the foundation of ACQ's sustained leadership and continued growth in the creative education sector. On the other hand, we plan to continue executing our existing operational initiatives while introducing additional measures aimed at driving cost savings and reducing operating expenses. To the end, we're optimizing our service portfolio and enhancing classroom utilization by expanding online course offerings and increasing student capacity. We're hosting more online classes and accommodating more students, strategically allocating sales and teaching resources to larger campus locations and consolidating select campuses in less active markets to maximize efficiency. In addition, we're streamlining sales organization and prioritizing cost-effective and proven student acquisition channels. Collectively, this initiative should position us well for an overall improved operational and financial performance in 2026 and beyond. For Q1, 2026, we have a strong pipeline of research-based learning projects. highlighted by the Finland Sustainable Design and Art Research Program. This winter camp offers participating students the opportunity to visit Aalto University in Finland, one of the world's leading institutions in design, architecture, and engineering, and take part in Arctic Center Sustainable Development workshops to learn about Arctic and Sami culture and hand-create artworks such as reindeer antler sculptures. Furthermore, In response to multiple contest opportunities our students are interested in, we're hosting a 2026 competition winter camp in January through a hybrid format of online and in-person classes. The camp includes multiple workshops for students with various areas of focus, including fashion design, digital design, future architecture, and more. With customized class offerings and hands-on guidance from ACG teaching staff, Students prepare their interdisciplinary portfolios for participation in various international and national competitions and strengthen their application portfolios. This relevant, well-designed, and carefully delivered project, along with our core portfolio training services that will continue to improve, demonstrate our long-term commitment to delivering state-of-the-art products and services to ACG students as they pursue their aspirations in creative arts. Over the long term, we remain focused on strengthening our portfolio of existing higher fee and higher margin services while driving innovation and introduction of new services. These efforts, combined with discipline call management initiatives, are designed to enhance overall margin improvement and drive results for ACG and our shareholders. Driving positive student outcomes has been the center of our business for years. to a continuous investment in our teaching team and continuous enhancement of our service portfolio. We're able to cater to student populations that covers six major arts disciplines, a wide age range, and those with different backgrounds and knowledge in their respective areas of arts and addressing their evolving needs. We remain dedicated to serving ACG students as they pursue their academic and professional goals in 2026 and beyond. 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. 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 Ma 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 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.