ATA Creativity Global Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 13, 2023

There are 3 speakers on the call.

Operator

Greetings. Welcome to ATA Creativity Global's Third Quarter 2023 Financial Results Call. Please note this conference is being recorded. I will now turn the conference over to Alice Zhang of Equity Group. Thank you.

Operator

You may begin.

Speaker 1

Thank you, operator, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global's or ACG's results for the Q3 9 months ended September 30, 2023 is available at the IR section of the company's website at www.atai.net.cn. As part of this conference call, the company has an accompanying slide presentation available on its website. A replay of this broadcast will also be made available at ACG's website for the next 90 days.

Speaker 1

Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These forward looking statements can be identified by terms such as anticipate, belief, could, estimate, expect, forecast, future, intent, look forward to, outlook, plan, should, will and similar terms and include, among other things, statements regarding ACG's future growth and results of operations, ACG's plans for mergers and acquisitions generally, ACG's growth strategy, anticipated growth prospects and subsequent business activities, including initiatives and adjustments by ACG as China eased COVID-nineteen pandemic related restrictions, market demand for and market acceptance and competitiveness of ACG's portfolio training programs and other education services. Although the company believes that expectations reflected in the forward looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause actual results to differ dramatically from those projected. There can be no assurance that those expectations prove to be correct. Information about the risks associated with investing in ACG is included in this filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision.

Speaker 1

The company does not assume any obligation to update any forward looking statements as a result of new information for future events, changes in market conditions or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to Slide 2 of the conference call presentation for further information. All U. S. Dollars amounts in this conference call relating to financial results for the Q3 9 months ended September 30, 2023 are converted from RMB using an exchange rate of RMB 7.2960 to US1 dollars the non buying rate as of September 30, 2023.

Speaker 1

All historical conversions are accurate as of the time reported, unless otherwise noted. The company reports its financial results under U. S. GAAP in RMB, and all percentages calculated in the presentation are based on RMB unless otherwise noted. For those of you following along with the company's PowerPoint presentation, there is an overview of the company on Slide 3.

Speaker 1

In addition, we're more than happy to take investor questions during today's Q and A session or via e mail to the company. If you wish to ask questions, you can send your questions to the e mail address, azhang at equityny.com. And please specify whether you would like to have your name read during the Q and A session. On today's call, the company's CFO, Mr. Robae Syama, will provide a brief overview of operating and financial highlights for the Q3 of 2023.

Speaker 1

As Chairman and CEO, Mr. Kevin Ma is unable to be here today due to personal reasons, Mr. Seema will join President, Mr. Jun Zhang, in providing an update on the company's outlook and its long term growth strategy before opening the floor for questions. With that, I'll turn the call over to ACG's CFO, Mr.

Speaker 1

Robai Sinha. Please go ahead, Mr. Sinha.

Speaker 2

Thank you, Alex, and welcome everyone. Good evening to the OC Americas, and we appreciate everyone's time. We were pleased with our solid financial performance during Q3 2023, reporting a 14.1% increase in net revenue, primarily as a result of increased contribution from portfolio training and research based learning services. As we were able to resume in person overseas summer camp this summer for the 4th time since the COVID-nineteen pandemic began in 2020, revenues from research based learning services more than doubled from the prior year period and we have been thrilled with the enthusiasm and positive student feedback received thus far, increasing revenues coupled with decreased operating expenses enabled us to significant narrow losses during the quarter. Total student enrollment for Q3 were 1093 compared to 1096 in the prior year period.

Speaker 2

However, we did see a slight increase in enrollments in our core portfolio training programs. During the period, portfolio training credit hours delivered increases 24.1 percent to 44,723 with credit hours delivered for project based programs, increasing nearly 35% year over year. We believe this demonstrates that our students have been leveraging TCG's teaching resources more efficiently as project based credit hours account for 69.5% of all portfolio training credit hours delivered. During the summer, we hosted 6 overseas programs, bringing students to countries such as the UK and Japan, where they had the opportunity to explore a variety of arts, general prestigious universities campuses and engage in real world applications. The successful delivery of these programs have reinforced our belief that FCD is fulfilling a growing demand for overseas learning programs and we are excited to continue presenting these opportunities to our students in the future.

Speaker 2

With that, I will quickly review financials. Total net revenues for Q3 2023 increased 14.1 percent to RMB59.9 million compared to RMB52.1 million in the Q3 of 2022. This was primarily driven by increasing revenues from portfolio training and research based learning services. Portfolio training services represented 77.5% of total net revenues during the period. Gross margin improved to 49.2% during Q3 2023 compared to 45.1% in the prior year period.

Speaker 2

The increase in gross margin was primarily due to increased net revenues compared to the prior year period. As a result of increased gross profit and decreased operating expenses, net loss attributable to ACG narrowed to RMB7.3 million during the Q3 of 2023 compared to RMB12 1,000,000 in the prior year period. Turning to year to date results for the 9 months ended September 30, 2023, net revenue increased 7.6 percent, to RMB138 1,000,000 from RMB128.3 million in the prior year period. Gross margin improved to 45.1 percent from 42.8 percent in the prior year period. Net loss attributable to ACG narrowed to RMB42.2 million compared to RMB49.9 million, primarily due to increased revenues and decreased operating expenses.

Speaker 2

Moving to the balance sheet, we continue to be in a solid financial position with US9 $1,000,000 in cash and cash equivalents. Working capital deficit was US36 million dollars and the total shareholders' equity was US14.2 million dollars at September 30, 2023 compared to working capital deficit of US33 million dollars and shareholders' equity of US20.8 million dollars respectively at December 31, 2022. Now turning our attention to ACG's outlook and growth strategy. We were pleased to see a positive momentum from the 4th half of the year continued into the second half with encouraging operating results coming from our core portfolio trading services business. As a result, ACG achieved a solid 14.1% increase in total net revenues, improved gross margin and significantly narrowed losses during the Q3 of 2023.

Speaker 2

Our sales results during the period indicate that builders remain interested in initiating and continuing their arts education and have chosen ACG as their trusted institutions to guide and support them as it makes their way longer creative journey. During this quarter, ACG also reported positive cash flow from operations. We have increased our cash and cash equivalents by 19.1% to RMB65.5 million. Total portfolio training credit hours delivered increased by 24.1% in Q3 2023, with the number of students enrolled increasing from 616 to 651 year over year. We continue to view portfolio training as our primary line of business, which serves as the main channel through which currently enrolled students can take part in value added services to further enrich their creative education experience.

Speaker 2

This includes our experiential learning offerings and research based learning services, overseas study counseling, and so on. All of these services together offers a comprehensive expenses for students who are working towards completing their personal portfolios and planning to apply to other arts institutions. We successfully hosted a total of 11 in person summer programs during Q3 2023, 6 overseas and 5 domestic. We were excited to bring these offerings back in this year and given the tremendous and positive reception. We look forward to planning and execute more overseas research based learning programs in the future, providing attractive and rapid learning programs on a variety of our topics.

Speaker 2

As we enter the 2023 to 2024 academic year and start to prepare for the upcoming application season, we are thrilled to announce preliminary admission results for students that submitted applications in 2023. Thus far, JTGE students have received offers from prestigious institutions worldwide from both art focused and non art focused universities in 2023, including MIT, Harvard University of Oxford, as well as Pratt's Rhode Island School of Design and Royal College of Art. We are incredibly proud of all the hard work our students have put in to yield these impressive results, and we are grateful to have been a part of their journey. We remain committed to serving students and enable these types of positive education and career outcomes for those wishing to pursue our study. I'd now like to hand the floor over to Jun Zhang, HCG's President to provide an update on our current growth initiatives.

Speaker 2

Jun will make his remarks in Mandarin, which will be followed by an English translation. Jun, please go ahead.

Speaker 1

Thank you, Mr. Xin. 2023 has been an important year for ACG. We have been able to build some positive momentum in our business as China and the rest of the world continue to operate in a post pandemic near normal type of environment, which enabled us to fully resume in person instruction at our network of training centers and offer our overseas summer programs for the first time since 2020, bringing more than 100 students to various countries of interest and allowing them to receive an immersive experience in creative art study and application. ACG prides itself not only on the quality of its academic programming, but also on the support it provides from a professional development perspective.

Speaker 1

We continue to explore ways in which we can cooperate with more institutes and firms that can help provide students with various opportunities to hone their skills and utilize them in real world scenarios. In the remainder of 2023, we have a regular online master class programs lined up, along with other experiential offerings. For students looking to gain some professional experience, we're introducing a part time assistant PTA program through which to work with global well established brands on real world projects in an engaging environment. Participating students will have the opportunity to work and support various positions, covering architecture design, interaction design, fashion design and so on. Students will walk away with world class company working experience, as well as reference letter that will improve their college application competency.

Speaker 1

We believe programs like this are critical in providing students with hands on experience by being part of a real world professional team at reputable companies. This October, we also held our annual Shanghai Fashion Week program, providing students with Fashion Week VIP tickets and an opportunity to intern at Fashion Week with Chinese artist brands. Selected students were able to experience the runway backstage and order placement meetings, as well as working with marketing and branding teams. We believe this kind of experience is crucial for students interested in a career in fashion design and fashion brand operations. And we're pleased that participating students received possible feedback from the brand safe workers.

Operator

We're going

Speaker 1

to be entering a business season of application submission for many schools. At ACG, we strive to provide our students with the best in class support in a respective art field, as well as during the admission process. It is a critical time for many of our students and watching our teaching staff working closely with them to finalize and perfect their portfolio have been truly exciting. As Mr. Suma mentioned, our students have received tremendous success with offers for a number of renowned schools worldwide.

Speaker 1

And we look forward to helping this next class of students garner similar success in 2024. For years, we have worked to become a leading player in China's creative arts education industry. Our competencies stems from a deep understanding and constant monitoring of the market and academic trends an experienced teaching teams a proven track record and our continuous efforts in forming and maintaining our institutional partner network. On top of these capabilities, we're focused on providing relevant high quality offerings that are substantial in content, we believe lies at the center of our business growth. We remain committed to offering products that cultivate and nurture the appreciation and enlightenment of arts of the younger generation and continue to explore ways to serve a growing base of students with diverse needs in creative arts study.

Speaker 1

With that, I'll turn it back over to Mr. Sima.

Speaker 2

Thanks, Jun and Allen. We look forward to concluding 2023 on Astronomers. We remain focused on providing our students with carefully curated class offerings and believe we are in a position where we can execute our growth strategy by leveraging our advantage. With that, operator, let's open it up for questions.

Speaker 1

Thank

Operator

There are no questions at this time. I would like to turn the call back over to Mr. Suma for closing remarks.

Speaker 2

Okay. Thank you, operator. And thanks again to all of you for joining us. If anyone have questions for us, please feel free to reach out directly to us and or our Investor Relations Forum and the Epti Group. We are always available to speak to investors and look forward to speaking with you all during the fiscal 2023 earnings call.

Speaker 2

Thank you.

Operator

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

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Key Takeaways

  • Q3 net revenue rose 14.1% year-over-year to RMB59.9 million with gross margin improving to 49.2%, and net loss narrowed to RMB7.3 million from RMB12.1 million a year ago.
  • Portfolio training services accounted for 77.5% of revenue, as credit hours delivered increased 24.1% to 44,723 and project-based hours grew nearly 35%, with core student enrollments rising from 616 to 651.
  • Research-based learning revenues more than doubled as ACG resumed in-person overseas summer camps—hosting 6 programs abroad and 5 domestically—underscoring strong demand for experiential offerings.
  • Students reported impressive admissions success, receiving offers from prestigious institutions including MIT, Harvard, Oxford, RISD and the Royal College of Art.
  • ACG launched new professional development initiatives such as part-time assistant roles with global brands and a Shanghai Fashion Week internship program to give students real-world creative experience.
AI Generated. May Contain Errors.
Earnings Conference Call
ATA Creativity Global Q3 2023
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