ATA Creativity Global (AACG) 2025 Q1 法說會逐字稿

Greetings. Welcome to the ATA Creativity Global first-quarter 2025 financial results conference call. (Operator Instructions) I will now turn the conference over to Alice Zhang 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. Thus, 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, 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.

ACG's Chairman and CEO, Mr. Kevin Ma will start this call by highlighting the company's first-quarter 2025 key operational achievements and financial highlights. CFO, Mr. Ruobai Sima will provide an overview of financial and operating results for first-quarter 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's Chairman and CEO, Mr. Kevin. Please go ahead, Mr. Ma.

Thank you, Alice, and welcome, everyone. Good morning to those in America. We appreciate everyone's time.

Q1 2025 was highlighted by a 16% increase in net revenue and the gross profit respectively, driven by increased contribution from portfolio training and the research-based learning service. Portfolio training program created now delivered to ACT students increased by 5.8% during the first quarter of 2025. Higher net revenues and the slightly reduced operating expenses contributed to improve the bottom-line results during the quarter as compared to Q1 2024.

Moving on to first quarter operation highlights. Portfolio trading service continued to account for the majority of our revenue for the quarter. Total credit now delivered increased by 5.8% with project-based programs contributing about 74% of total credit now delivered, translating into 11.5% growth in revenue from the portfolio training programs. And buy the revenues from the research-based learning overseas studies concerning and other educational services also increased by more than 28% and it becomes increased the revenue contribute responsible for nearly 30% of total net revenues.

During the first quarter of 2025, we brought a variety of in-person and online research-based learning projects to students. In-person projects included in the camper to Hainan Province and the AI Training Camp at Alibaba tours to the United States and Japan in session week project entirely engaging a total of more than 100 students.

Apart from delivering our usual number of master class projects to students in online group class format, we also hosted a Creative Art Therapy training program taught by University of London lectures, which accommodated around the [863] students in total. We continue to receive a positive feedback from our students about the full 2025 admission results.

During the first quarter 2025, ACG students received the numerous admission from British 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 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 the Engineering, Design, Innovation at Northwest University. We remain excited about the upcoming admission results for the remainder of the fall 2025 application series.

We are proud to announce that on March 29, ACG was awarded the 2025 for China Studying Abroad Leading brand, along with New Oriental Education and the New Channel International Education on the 2025 International Education Leaders Annual Conference in the Folks China Studies, a broad industrial selection series award ceremony. We are pleased that the campaign is recognized not only by students, but also by industrial experts as a leading brand in generating positive outcomes for students who want to study arts abroad.

In March, ACG (inaudible) to five key cities in China as part of our Spring Art Education Exhibition, including Beijing, Shanghai, Wuhan, Chengdu, and the Chongqing. Similar to the October Autumn Art Education Exhibition, we hosted the seminars to discuss the latest arts design topics and observation of overseas study application changes and the mission changes giving -- participating students and parents a face-to -face opportunity to communicate with the professors from prestigious overseas arts institutions.

With that, I will hand over the call to Sima for (technical difficulty) first-quarter 2025.

Thank you, Kevin, and I will start with fourth quarter of 2025 key financial metrics. Total net revenues for fourth quarter of 2025 were RMB55.8 million, an increase of 15.9% from RMB48.1 million in fourth quarter of 2024, which was primarily due to increased revenue contributions from portfolio training programs and research-based learning services after we delivered more services and hosted an increased number of research-based learning experience.

Gross profit for fourth quarter of 2025 was RMB25.4 million, an increase of 15.9% from RMB21.9 million in fourth quarter of 2024, primarily due to higher net revenues. Gross margin was 45.5% during fourth quarter of 2025 and changed as compared to 45.5% in the prior year period.

Total operating expenses for RMB42.2 million in fourth quarter of 2025, slightly decreasing from RMB43.6 million in fourth quarter of 2024. There was a percentage of net revenue, total operating expenses decreased to 75.6% during fourth quarter of 2025 compared to 90.6% in the prior year period. The slight decrease in operating expenses was due to an RMB1.3 million decrease in selling expenses, and RMB0.3 million decrease in research and development expenses as ACG system development was completed in [22], 2024, and collection of previously impaired loans and other receivables offset by an RMB4 million 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 of 2025 was RMB16.8 million compared to RMB21.7 million in the fourth quarter of 2024. Net loss attribute to ACG during the fourth quarter of 2025 was RMB13.3 million compared to RMB17.9 million in the prior year period.

Moving to the balance sheet highlights as March 24, 2025, we have RMB39.4 million in cash and cash equivalent. Total assets of RMB457.3 million. Total liabilities of RMB390.9 million. And the total shareholders' equity of RMB66.4 million.

Moving to year-to-date enrollment trends, starting with student enrollment. For fourth quarter of 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 students enrollment for fourth quarter of 2025 was 626 and student enrollment for all other programs for fourth quarter of 2025 was 478.

Moving to moving on to credit hours delivered. For fourth quarter of 2025, credit hours delivered slightly increased by 5.8%, driven by a 15.5% increase in project-based programs, which in recent years, have accounted for a continuously increasing percentage of total credit hours and it was partially offset by decreased time-based programs by the hours.

With that, let's move to our expectations for the full year 2025. We expected to report total net revenues of approximately RMB276 million to RMB281 million for the year ending December 24, 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 the rate for the year end December 24, 2025, and the current and primarily 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.

(interpreted) 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 future 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 phase in the 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 expanded student base, serving older adults and younger generation who are looking for experiential learning opportunities in our studies, workshops, and same 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 masterclass 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 the continuous investment in introducing new offerings.

With that, operator, let's open it up for questions.

(Operator Instructions) 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.

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.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.