ATA Creativity Global - Earnings Call - Q1 2025

Transcript

Operator (participant)

Greetings. Welcome to the ATA Creativity Global 1st Quarter 2025 Financial Results Conference call. At this time, all participants are in a listen-only mode. The 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 Zhang of The Equity Group. Thank you. You may begin.

Alice Zhang (Head of Investor Relations)

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. 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's Chairman and CEO, Mr. Kevin Ma, will start this call by highlighting the company's 1st quarter 2025 key operational achievements and financial highlights. CFO, Mr. Ruobai Sima, will provide an overview of financial and operating results for 1st 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.

Kevin Ma (Chairman and CEO)

Thank you, Alice, and welcome everyone. Good morning to those in America. I appreciate everyone's time. Q1 2025 was highlighted by a promaxed 16% increase in net revenue and gross profit, respectively, driven by increased contribution from portfolio training and research-based learning service. The portfolio training program created lower deliveries to ACG students, increased by 5.8% during the 1st quarter of 2025. Higher net revenues and slightly reduced operating expenses contributed to improved bottom-line results during the quarter as compared to Q1 2024. Moving on to 1st quarter operation highlights, portfolio training services continued to account for the majority of our revenue for the quarter. Total created lowest delivery increased by 5.8%, with project-based programs contributing about 74% of total created lower delivery, translating into an 11.5% growth in revenue from the portfolio training programs.

Combined revenues from the research-based learning overseas studies counseling and other educational services also increased by more than 28%, and the increased revenue contributed responsible for nearly 30% of total net revenues. During 1st quarter 2025, we brought a variety of in-person and online research-based learning projects to ACG students. In-person projects included a themed camp to Hainan province and AI training campaign at Alibaba, tours to the United States and Japan, Milan Fashion week project in Italy, engaging a total of more than 100 students. Apart from delivering our usual level of master class projects to students in an online group class format, we also hosted a creative arts therapy training program taught by University of London lecturers, which accommodated around eight students in total. We continue to receive positive feedback from our students about the full 2025 admission results.

During 1st quarter 2025, ACG students received numerous admissions from prestigious overseas institutions, including major Ivy League schools, other top schools, admissions to name a few, come 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, met with extremely high application requirements and overall low acceptance rate, including the MFA in Film & Television Production at the University of Southern California, Architecture at UC Berkeley, and Engineering Design Innovation at Northwestern University. We remain excited about the upcoming admission results for the remainder of the full 2025 application series.

We are proud to announce that on March 29th, ACG was awarded the 2025 Forbes China Studying Abroad Leading Brand, along with New Oriental Education and New Channel International Education at the 2025 International Education Leaders Annual Conference and the Forbes China Study Abroad Industrial Selection Series Awards Ceremony. We are pleased that the campaign is recognized not only by students but also by industry experts as a leading brand in generating positive outcomes for students who want to study arts abroad. In March, ACG toured five key cities in China as part of our spring art education exhibition, including Beijing, Shanghai, Wuhan, Chengdu, and Chongqing.

Similar to the October autumn art education exhibition, we hosted similar to discuss the lost arts design topics and observation of overseas study application trends and admission trends, giving participating students and parents a face-to-face opportunity to communicate with professors from prestigious overseas arts institutions. With that, I will hand over the call to Sima for 1st quarter 2025.

Ruobai Sima (CFO)

Thank you, Kevin. I will start with 4th quarter 2025 key financial metrics. Total net revenues for 4th quarter 2025 were RMB 55.8 million, an increase of 15.9% from RMB 48.1 million in 4th quarter 2024, which was primarily due to increased revenue contributions from portfolio training programs and research-based learning services as we delivered more services and hosted an increased number of research-based learning experience. Gross profit for 4th quarter 2025 was RMB 25.4 million, an increase of 15.9% from RMB 21.9 million in 4th quarter 2024, primarily due to higher net revenues. Gross margin was 45.5% during 4th quarter 2025 and changed as compared to 45.5% in the prior year period. Total operating expenses were RMB 42.2 million in 4th quarter 2025, slightly decreasing from RMB 43.6 million in 4th quarter 2024.

Whereas our percentage of net revenues, total operating expenses decreased to 75.6% during 4th quarter 2025, compared to 90.6% in the prior year period. The slight decrease in operating expenses was due to an RMB 1.3 million decrease in selling expenses, an RMB 0.3 million decrease in research and development expenses as ACG system development was completed in Q2 2024, and collection of previously impaired loans and other receivables offset by an RMB 4 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 lowered operating expenses, loss from operations in 4th quarter 2025 was RMB 16.8 million, compared to RMB 21.7 million in 4th quarter 2024. Net loss attributed to ACG during 4th quarter 2025 was RMB 13.3 million, compared to RMB 17.9 million in the prior year period.

Moving to the balance sheet highlights, as of March 31, 2025, we have RMB 39.4 million in cash and cash equivalents, total assets of RMB 457.3 million, total liabilities of RMB 390.9 million, and total shareholders' equity of RMB 66.4 million. Moving to year-to-date enrollment trends, starting with student enrollment. For 4th quarter 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 the same period in 2024 and 2023, as we discussed in the fiscal year 2025 outlook last quarter. Portfolio training student enrollment for 4th quarter 2025 was 626, and student enrollment for all other programs for 4th quarter 2025 was 478. Moving on to credit hours delivered.

For 4th quarter 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 was partially offset by decreased time-based program credit hours. With that, let's move to our expectations for the full year 2025. We expected to report total net revenues of between RMB 276 million-RMB 281 million for the year ended December 24, 2025, which represents a year-over-year increase of around 3%-5% for the 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 array 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. I'd now like to turn it over to Jun, who will expand upon our long-term growth strategy. Jun, please go ahead.

Jun Zhang (President)

[Foreign Language]

[Translator]: 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 we remain enthusiastic about the creative arts education market in China.

[Translator]: 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 due to 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-based and overseas study counseling programs, contributing to a more substantial part of our revenue growth.

[Translator]: On top of that, we're actively leveraging our teaching resources and our current portfolio of services to address our expanded student base, serving older adults and younger generations who are looking for experiential learning opportunities in art studies, workshops, and STEAM Travels. For 2nd 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 3rd 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 U.K. and the U.S.

[Translator]: This has helped expand our access to global resources and assist 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 base. 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 (participant)

Thank you. We will now be conducting a question and answer session. 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, please, while we pull for questions. Thank you. 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.

Kevin Ma (Chairman and CEO)

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.

Operator (participant)

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.