ATA Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

Key Takeaways

  • Excluding 155 foreign language training students, total student enrollment for Q2 2023 increased 7.5% year-over-year, reflecting normalization after pandemic-related pent-up demand.
  • Q2 net revenue rose 6.5% to RMB 36.2 million, gross margin improved to 39.5%, and net loss narrowed to RMB 17.2 million, driven by portfolio training and overseas study counseling growth.
  • Overseas summer programs and study consulting services saw strong demand as travel restrictions eased, marking the fourth consecutive post-COVID summer of resumed offerings.
  • The company maintains a solid financial position with $7.8 million in cash, $35.9 million adjusted working capital, and recovering shareholders’ equity of $15.2 million at June 30, 2023.
  • ACG launched new domestic heritage camps across three provinces and a Tokyo design innovation program, aiming to expand its portfolio and international partnerships.
AI Generated. May Contain Errors.
Earnings Conference Call
ATA Q2 2023
00:00 / 00:00

There are 4 speakers on the call.

Operator

Greetings. Welcome to ATA Creativity Global Second Quarter 2023 Financial Results Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

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

Speaker 1

Thank you, operator, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Globals, or ACG's, results for the Q2 6 months ended June 30, 2023, is available at the IR section of the company's website at www.ata.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 with terms such as anticipate, believe, could, estimate, expect, forecast, future, intend, 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 taken 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 the expectations reflected in these 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 will prove to be correct.

Speaker 1

Information about the risks associated with investing in ICG is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision. The company does not assume any obligation to update any forward looking statements as a result of new information, 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.

Speaker 1

Dollar amounts in this conference call relating to financial results for the Q2 6 months ended June 30, 2023 are converted from RMB using an exchange rate of RMB 7.2513 to 1 US dollar, the known buying rate as of June 30, 2023. 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 percentage calculated in the presentation are based on RMB unless otherwise noted.

Speaker 1

For those of you following along with the accompanying PowerPoint presentation, there is an overview of the company on slide 3. 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, azhangequityny.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.

Speaker 1

Robail Singh Ma, will provide a brief overview of operating and financial highlights for the Q2 of 2023. Chairman and CEO, Mr. Kevin Ma and President, Mr. Jun Zhang will follow with 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

Robail Ciuna. Please go ahead, Mr. Ciuna.

Speaker 2

Thank you, Alex, and welcome everyone, and good evening for those in America, and we appreciate everyone's time. We were pleased to see positive enrollment trend from the Q4 of 2023 continue into the Q2. We saw some pent up demand at the start of the year when domestic and international travel restrictions were left in China. However, enrollment levels normalized over the course of the Q2 of 2023. Total student enrollment for the Q2 2023 was 928 compared to 10 18 in the prior year period.

Speaker 2

However, excluding 155 students who are enrolled in the foreign language training business that were disclosed in Q3 2022, student enrollment actually increased 7.5% year over year. We also achieved stable growth in net revenue compared to the prior year period, which was primarily due to increased service delivered for portfolio training and overseas study counseling. We delivered 28,698 credit hours for the portfolio training program in Q2, a 13% increase from the prior year period. As a result of increased gross profit and lower operating expenses, we also reported improved year over year bottom line results. We were particularly excited about our overseas summer programs this year As this is the 4th summer, we resumed offering this type for programming since the COVID-nineteen pandemic.

Speaker 2

We saw strong demand for those offerings, many of which have been delivered at this point in time and have been filled with the positive feedback we have received from students thus far. We remain excited about the prospects of all major lines of business in the remainder of the year. With that, I will quickly review the financials. Total net revenues for Q2 2023 increased 6.5% to RMB36.2 million compared to RMB34 1,000,000 in the Q2 of 2022. It was primarily driven by increased revenues from portfolio training and overseas study counseling services.

Speaker 2

Despite a lack of revenue from the disposal of foreign language training services business, portfolio training services represented 78.1% of the total net revenue during the period. Gross margin improved to 39.5% during Q2 2023 compared to 35.6% in the prior year period. The increase in gross margin was primarily due to increased net revenues while the cost of revenue remained relatively stable from the prior year period. Net loss attributable to ACG narrowed to RMB17.2 million during Q2 of 2023 compared to RMB22.1 million in the prior year period, which was primarily a result of increased net revenues and decreased operating expenses during the period. Turning to the fourth half of twenty twenty three, net revenue increased to RMB78.6 million compared to RMB76.2 million in the prior year period.

Speaker 2

Gross margin improved to 42.1 percent from 41.2 percent in the prior year period. Net loss attributable to ACC narrows to RMB35 1,000,000 compared to RMB37.9 million, primarily due to decreased operating expenses. Moving to the balance sheet, we continue to be in a solid financial position with US7.8 million dollars in cash and cash equivalents. Working capital adjusted was US35.9 million dollars and total shareholders' equity was US15.2 million dollars at June 30, 2023 compared to working capital deficit of US33 $1,000,000 and shareholders' equity of US20.8 million dollars respectively at the December 34, 2022. With that, I'd like to turn it over to Kevin, who will explain upon our outlook and growth strategy.

Speaker 2

Kevin?

Speaker 3

Thank you, Suma. Driving the positive momentum we experienced at the beginning of 2023 with the lifting of pandemic related restrictions, we continued to see growing demand for our offerings, particularly in portfolio training and OSI studies consulting service, which more than offset a lack of revenue contributions from the foreign language training service we disposed of in Q3 2022. We saw a wave of new students air during Q1 2023, which eased to normalized levels in Q2 2023. We anticipate students' enrollment will continue to grow at a stable rate in the improved market environment. Overseas study consulting service continues to gain momentum as an increasing number of students are looking to apply for overseas art school and institutions.

Speaker 3

We leverage our teaching resources and international institutional partnership to support our students with equity academic program and a comprehensive counseling service, working as a trusted adviser throughout the application process. We remain optimistic about the potential of our business as more and more students seek to enrich or reinish to their art study jewelry in past the pandemic environment. We are extremely proud to be part of their jewelry and take pride in our comprehensive high quality offerings and the 1st class teaching staff, extensive educational resources and above all the positive student outcomes resulting from education with ACG. We will continue to explore ways to expand our portfolio of service, which targets a wild sector of arts related topics for all kinds of students in different stages of their start, and look forward to serving an increasing population of students as a leader in the creative arts education industry in China. I'd now like to hand the floor over to Jun Zhang, SAG's President, to provide an update on our current growth initiatives.

Speaker 3

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

Speaker 2

Thank you, Kevin.

Speaker 1

Thank you, Kevin. It has been a truly rewarding first half of the year for ACG as we welcome students back to campus in person, fully returning to the face to face communication and interaction with our students that has been more challenging to come by in recent years. Our goal has always been to help students explore the full potential of their arts pursuits and achieve what they define as success from an academic and professional perspective. We have been impressed by the perseverance demonstrated by several of our students during the pandemic and are particularly proud of their achievements. Since the beginning of 2023, there has been growing demand for our programs with many students seeking to experience hands on projects or educational tours that provide an opportunity to explore other parts of the country or the world.

Speaker 1

We're confident that ACG will be able to maximize our strength in research based learning, curating projects and programs that adapt to the changing world of the arts and nurture students' sensibilities in related fields, which we believe is incredibly valuable beyond their schooling. This summer, on top of regular internships, boot camps and summer school programs, we continue to host domestic and tangible cultural heritage themed camps, covering 3 heritage sites across China in Yunnan Province, Guizhou Province and Gansu Province. These unique programs allow participating students to really immerse themselves in a local environment and learn from experts in various fields, including photography and film, ethnic market group, cultures, mineral oil painting and painted sculptures. In addition to these domestic programs, ACG will also launch a design innovation cat experience in Tokyo, Japan, co hosted by the CINO Japanese Education Exchange Association. This project will provide students with an immersive experience covering 6 content modules, not only at the campuses of the University of Tokyo and Waseda University, but also at art venues, local neighborhoods and art studios.

Speaker 1

Participating students will have the opportunity to explore interdisciplinary art study and gain local access to different artistic styles and schools in Japan. This program aims to help students who may be interested in studying abroad to learn how to understand foreign arts and culture from multiple perspectives, looking for both a historical and traditional presentation and modern design display of Japanese culture. We believe this program, along with all our other programs this summer, would serve as a good starting point for resuming our overseas programs since the pandemic, and we cannot wait to hear the feedback from our students. Starting this summer, most students who want to apply for overseas schools have started to work intensively on the portfolios. Our staff have been working closely with students on the presentation ideas and projects that will become key pieces of the portfolio.

Speaker 1

And it is always gratifying to see the combination of the students' hard work as they undergo the application process. ACG has maintained a leading role in the creative arts field. Our competency stems from a proven track record of delivering positive student outcomes, our amazing teaching staff with experiences in all major areas of art around the world, a strong and growing network relationship with renowned arts institutes and the ability to launch relevant products of interest to students. ACG's comprehensive set of offerings and services is meant to serve a large diverse student population, and we continue to work to and we continue working to increase our brand awareness among students of different age groups By introducing more options for superior educational arts experiences, we aim to better serve these students. With that, I'll turn it back over to Kevin.

Speaker 3

Thanks, Jun and Alice. We are pleased with AZG's achievements in the first half of twenty twenty three and are excited about the opportunities for the remainder of the year. We are always thinking ways to improve our student experience and believe we are well equipped to execute our growth strategy by expanding our service to meet their demands. With that, operator, let's open it up for questions.

Operator

Thank There are no questions at this time. I would like to hand it back to Kevin for closing remarks.

Speaker 3

Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach directly to us or our Investor Relations from the ACT Group. We are always available to speak to investors and look forward to speaking with you all during our next quarterly call. Thank you.

Operator

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

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