ATA Creativity Global (AACG) 2025 Q3 法說會逐字稿

Greetings. Welcome to ATA Creativity Global third-quarter 2025 financial results. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to Alice Zhang with the Equity Group. Thank you, Alice. You may begin.

Thank you, operator. Good evening to all of you joining us from the 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, 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 CFO, Mr. Ruobai Sima, 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's CFO, Mr. Ruobai 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 deck 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 study counseling and other educational services.

During third-quarter 2025, our main revenue contributors remain 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 learnings and overseas study counseling increase during the period compared to the prior year period. As a result of more services delivered.

During this summer, we had a series of online and in-person research-based learnings experience that accommodated over 500 students. These experiential projects included recruiting and new ones from online Master Classes to our US Sustainable Goals Arts Boot Camp, a total of 14 summer labs lectured by instructors from prestigious schools in the UK and in the US to our New York Fashion 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 campus.

At this intensive summer lab, students gather firsthand learning experience on the state-of-the-art virtual reality and augmented reality technologies and walked away from -- with their own design solutions and certificate of attendance issued by PolyU. As we enter the registration period of 2026 academic year, our national 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. I'll provide some additional color on expectations for fiscal year 2025. Starting with third-quarter 2025 key financial metrics. Total net revenues for third-quarter 2025 was RMB67.3 million, relatively stable as compared to the third quarter of 2024.

Gross profit for third-quarter 2025 was RMB26.4 million compared to RMB30 million in the third-quarter 2024. Affected by higher cost of revenues related to research-based learning services outsourcing costs and part-time teacher costs, gross margin was 39.2% during the third-quarter 2025 compared to 44.6% in the prior year period. Total operating expense was RMB37 million in the third quarter of 2025, a decrease of 22.4% from RMB47.7 million in the third-quarter 2024.

Well, as a percentage of net revenues, total operating expenses significantly decreased to 34.9% during the third-quarter 2025 compared to 70.9% in the prior year period. The decrease in operating expenses was due to a RMB5.9 million decrease in sales expenses related to lower headcount in sales personnel. And RMB4.8 million decrease in general and administrative expenses as a result of decreased professional fees and lower investments in new project development, while research and development expenses remained relatively stable.

As a result of lowering operating expenses, loss from operating in the third-quarter 2025 narrowed to RMB10.6 million from RMB17.6 million in the third-quarter 2024. Net income attributable to ACG during third-quarter 2025 was RMB2.4 million compared to a net loss attributable to ACG of RMB14.7 million in the prior year period, primarily due to a onetime gain from previous investments.

Turning to nine months 2025. Total net revenues increased 7.1% to RMB179 million from RMB167.1 million in the prior year period. The increase was primarily attributable to increased contribution from research-based learnings and overseas study counselings and other educational services.

Gross profit for nine months 2025 was RMB80.1 million, an increase of 3.2% from RMB77.6 million in nine months 2024. As a result of increased revenues, it was partially offset by increased outsourcing costs during the period. Gross margin was 44.7% compared to 46.4% in nine months 2024.

Total operating expenses was RMB121.3 million in nine months 2025, a decrease of 11.9% from RMB137.7 million in nine months 2024. As a percentage of net revenues, total operating expenses decreased to 67.8% from 82.4% in the prior year period. The decrease were primarily due to a RMB9.8 million decrease in sales expenses as a result of lowering headcount in sales personnel and decreased sales incentive compared to nine months 2024.

And then RMB0.5 million decrease in research and development expenses as well as RMB2.3 million decrease in general and administrative expenses, reflecting of the accounting impact on purchasing price allocation from previous completed acquisitions. As a result of increased revenues and decreased operating expenses, loss from operating operations in nine months 2025 narrowed to RMB41.1 million compared to RMB60 million in nine months 2024. Net loss attributable to ACG in nine months 2025 was RMB21.7 million compared to RMB49.4 million.

Moving to the balance sheet highlights. As of September 30, 2025, we had RMB96.8 million in cash and cash equivalents. Total assets of RMB462.5 million, total liabilities of RMB403.7 million and total shareholders' equity of RMB58.8 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 prior 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 students enrollment for all other programs for third-quarter 2025 was 457.

Moving on to credit hours delivered. For third-quarter 2025, credit hours 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 these 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 RMB276 million to RMB281 million for the year-end December 31, 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 our revenue accompanied by increased contribution from all other lines of business. And 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 underway for the year end December 31, 2025, and the current and preliminary view of existing domestic and international market conditions, which are all subject to change. I'd now like to turn it over to Jun, who will expand upon our long-term growth strategy.

Jun, please go ahead.

(spoken in foreign language)

Thank you, Jun. 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 course 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 take -- took on approaches to ensure our product mixture keeps up with our students' demand, 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 app 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 at 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 the 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 for 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 gained firsthand exposure to a full spectrum of our 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 art 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 admission to their dream schools.

For the remainder of 2025 and into 2026, we remain confident that our ongoing investments and strategic growth initiatives, combined with disciplined execution and strong focus on cost management will drive sustainable value creation for the company by carefully balancing the 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.

(Operator Instructions) There are no questions at this time. I would like -- 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, and please feel free to reach out directly to us or our Investor Relations team from 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 at this time and thank you for your participation.