ATA Q3 2024 Earnings Report

ATA EPS Results

• Actual EPS: -$0.06
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

ATA Revenue Results

• Actual Revenue: $9.58 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

ATA Announcement Details

• Quarter: Q3 2024
• Date: 11/7/2024
• Time: After Market Closes
• Conference Call Date: Thursday, November 7, 2024
• Conference Call Time: 8:00PM ET

ATA (NASDAQ:AACG) Creativity Global (NASDAQ: AACG) is a China-based provider of after-school art education services, delivering supplemental training to students from preschool through high school. The company’s curriculum spans traditional techniques such as sketching, watercolor and calligraphy, as well as digital art instruction, including digital illustration and multimedia design.

ATA Creativity Global combines in-person instruction at its learning centers with a proprietary online platform, enabling students to access course materials, interactive lessons and instructor feedback remotely. This blended approach is designed to reinforce core art skills while fostering creativity and critical thinking through project-based learning.

The company’s network includes both self-operated and franchised learning centers located in major cities and regional hubs across China. By leveraging local partnerships and standardized operating procedures, ATA Creativity Global aims to maintain consistent quality and a unified brand experience for students and parents.

Founded in 2007 and headquartered in Shanghai, ATA Creativity Global is led by a management team with backgrounds in education, technology and creative arts. The leadership group focuses on curriculum development, digital innovation and strategic expansion to meet growing demand for supplemental educational services in China’s competitive K-12 market.

ATA Q3 2024 Earnings Call Transcript

Key Takeaways

• ACG delivered double‐digit revenue growth in Q3 2024, with net revenues up 13.1% to RMB67.3 million and 9-month revenues rising 21.1% to RMB167.1 million, while total student enrollment increased by 20% year-over-year for the first nine months.
• The company’s operating loss widened to RMB17.6 million in Q3 (RMB60.1 million for 9 months) due to higher sales and marketing expenses and increased general and administrative spending to support business expansion.
• ACG reaffirmed its full‐year 2024 guidance of RMB233–255 million in revenue (5–15% YoY growth), driven primarily by continued expansion of its portfolio training services.
• As part of its growth strategy, ACG opened a new London center and signed strategic partnerships with Leeds Conservatoire and Oasis Start Education Technology to integrate AI capabilities and enrich its global program offerings.
• Long-term initiatives focus on organic growth, geographic expansion, launching new services in digital arts and research-based learning, and evaluating potential M&A opportunities to strengthen its market position.

Presentation

[Operator]

As a reminder, this conference is being recorded. It is now my pleasure to introduce Alice Zhang with The Equity Group. Thank you, Alice. You may begin.

[Alice Zhang, Head of Investor Relations at The Equity Group]

Thank you, Operator. Good morning to all of you joining us from China, and good evening to all of you joining us from the United States. 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 statement. Please refer to the company's most recent SEC filings for a more complete description of the 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 two of the conference call presentation, which is accessible via the IR section of ACG's website.

[Alice Zhang, Head of Investor Relations at The Equity Group]

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 highlighting the company's third quarter and nine-month key operational and financial achievements. CFO, Mr. Ruobai Sima, will provide an overview of financial and operating results for third quarter and nine months 2024, expectations for the remainder of 2024, and full-year guidance. 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 company's 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 Ma. Please go ahead, Mr. Ma.

[Kevin Xiaofeng Ma, Chairman and CEO at ATA Creativity Global]

Thank you, ladies. Welcome, everyone. Good evening to those in America. I appreciate everyone's time. As Alice mentioned, please refer to our earnings data available on the IR side of our website as we go through our prepared remarks. During the third quarter of 2024, ACG continued to focus on providing quality service to our valued students and parents, developing products and service offerings that tend to our students' growing and evolving needs, exploring new partnerships with institutions within the arts industry, as well as seeking collaboration opportunities across different industries. All in all, the third quarter of 2024 was a strong quarter for ACG in terms of net revenues and student enrollments. We reported double-digit growth in net revenues and overall student enrollment rates. This is highlighted by strong student enrollments for our portfolio training programs, as well as increased credit hour deliveries during that period.

[Kevin Xiaofeng Ma, Chairman and CEO at ATA Creativity Global]

For nine months 2024, we saw equally strong year-over-year improvements as net revenues, overall enrollment rates, and credit hour deliveries all increased by more than 20% compared to nine months 2023. Portfolio training services remained our main source of revenues, contributing more than 70% of our total revenues for both third quarter 2024 and nine months 2024. Within this part of the service, we continued to encourage students to sign up for project-based programs. As a result, this segment continues to account for the majority of our portfolio training services, responsible for 70% of total credit hour deliveries during the third quarter. Thanks to our continuous efforts in developing various programs and offerings, we are also seeing a growing engagement in other parts of our service. Student enrollments for research-based learning and overseas study counseling increased by more than 20% compared to the third quarter 2023.

[Kevin Xiaofeng Ma, Chairman and CEO at ATA Creativity Global]

For this summer, our highest project is the second session of the United Nations Sustainable Development Goals Arts Bootcamp. Two intangible cultural heritage campaigns in China, one U.S. campaign still, and two summer campaigns in London and Tokyo. In addition, for the first time since the pandemic, apart from our usually online masterclasses, we also hosted the ACG Summer Lab, providing students with the opportunity to study in person with lecturers joining us from prestigious art institutions and the art field in general. We believe the capability to provide those various experiences is one of ACG's core competencies in the creative arts market, which is built upon our continuous investment and close monitoring of the arts trends in the academia and the industry, as well as a strong global partnership network that allows us to access the world-class resources.

[Kevin Xiaofeng Ma, Chairman and CEO at ATA Creativity Global]

During the third quarter 2024, we continued to expand our partnership network by establishing new strategic partnerships with leaders from several areas in the U.K. and with Oasis Star Educational Technology, which dovetails well to expand our network. With that, I will hand over the call to Mr. Sima for a detailed overview of our financial and operational results for the third quarter and nine months 2024, and our guidance for fiscal year 2024.

[Ruobai Sima, CFO at ATA Creativity Global]

Thank you, Kevin. I will start with the third quarter and nine months key financial metrics. Total net revenues for the third quarter 2024 were RMB 67.3 million, an increase of 13.1% from RMB 59.5 million in the third quarter 2023, which was primarily due to increased revenue contributions from research-based learning and portfolio training services. Gross profit from the third quarter 2024 was RMB 13 million, an increase of 2.6% from RMB 29.2 million in the third quarter 2023. Gross margin was 44.6% during the third quarter 2024, compared to 49.2% in the prior year period. The decrease in gross margin was mainly a result of higher costs related to more teaching staff hired as compared to the third quarter 2023, to accommodate increased numbers of students and the larger outsourcing costs related to research-based learning services.

[Ruobai Sima, CFO at ATA Creativity Global]

Total operating expenses were CNY 47.7 million in the third quarter 2024, an increase of 28.4% from CNY 37.1 million in the third quarter 2023. The increase was primarily due to an CNY 5.4 million increase in sales expenses related to an increased number of sales personnel and marketing events, as well as CNY 5.6 million increase in general and administrative expenses related to increased professional fees and business expansion-related investments. As a result, loss from operations in the third quarter 2024 was CNY 17.6 million compared to CNY 7.9 million in the third quarter 2023. Net loss attributed to ACG during the third quarter 2024 was CNY 14.7 million compared to CNY 7.3 million in the prior year period. Turning to nine months 2024, total net revenues increased 21.1% to CNY 167.1 million from CNY 138 million in the prior year period.

[Ruobai Sima, CFO at ATA Creativity Global]

The increase was primarily attributed to increased contributions from portfolio training, research-based learning, and overseas study counseling services. Gross profit for nine months 2024 was CNY 77.6 million, an increase of 24.6% from CNY 62.3 million in nine months 2023. As a result of increased revenues during nine months 2024, gross margin slightly improved to 46.4% from 45.1% in nine months 2023. Total operating expense was CNY 137.7 million in nine months 2024, an increase of 22% from CNY 112.9 million in nine months 2023. The increase was primarily due to CNY 14.4 million increase in sales expenses related to an increased number of sales personnel to drive sales growth, as well as CNY 10.5 million increase in general and administrative expenses related to increased professional fees and business expansion-related investments.

[Ruobai Sima, CFO at ATA Creativity Global]

As a result, loss from operations in nine months 2024 was RMB 16 million compared to RMB 50.6 million in nine months 2023. Net loss attributed to ACG in nine months 2024 was RMB 49.4 million compared to RMB 42.2 million. Moving to the balance sheet highlights. As of September 30, 2024, we had RMB 39.4 million in cash and cash equivalents, total assets of RMB 459.4 million, total liabilities of RMB 393.2 million, and total shareholders' equity of RMB 66.2 million. Moving on to year-to-date enrollment trends. For nine months 2024, total students' enrollment increased by 20% as compared to nine months 2023, supported by strong students' interest growth in both ACG portfolio training and all other programs. Portfolio training students' enrollment for nine months 2024 increased by 20.7% to 2,220, and all other program students' enrollment for nine months 2024 increased by 19.1% to 1,523.

[Ruobai Sima, CFO at ATA Creativity Global]

Credit hours delivered for portfolio training services were historically higher due to seasonal reasons and students yearly start their portfolio creation work in the second half of the year for enrollment in the following fall semester. For nine months 2024, credit hours delivered significantly increased by 28.5%, whereby time-based program credit hours increased by 29% and project-based program credit hours increased by 28.3%. We remain committed to offering high-quality services across our business line to students who seek guidance and support in their pursuit of a study and career in arts. With that, let's move into guidance for full year 2024. We believe we are on track to achieve our full year 2024 revenue guidance for RMB 233-RMB 255 million, representing a year-over-year increase of 5%-15% over full year 2023.

[Ruobai Sima, CFO at ATA Creativity Global]

Our belief is based on the strong enrollment trend we are seeing and our ability to expand current services and offerings. For the remainder of 2024, portfolio training services will continue to serve as a primary growth driver for our business, as well as important students' acquisition channel for our other business. I'd like to turn it over to Jun, who will expand upon our long-term growth strategy. Jun, please go ahead.

[Ruobai Sima, CFO at ATA Creativity Global]

谢谢司马。我们的增长战略围绕四个支柱：有机增长、扩大区域服务范围、推出新服务，以及潜在的并购机会。首先，关于有机增长，正如司马所提到，我们一直鼓励参与我们作品集培训服务的学生选择项目制课程。该课程根据学生需求提供更灵活、更定制化的课程。我们在当今市场上看到的强劲招生趋势也令人兴奋。我们看到更多来自作品集培训服务的学生对我们的增值产品感兴趣，购买研学、留学服务的学生数量增长，从而带来更高的收入贡献。除此之外，我们的教学人员参与销售和产品设计的过程，也帮助我们提高了课程质量，并促进了销售。我们扩大了所有城市的校区覆盖范围，并将区域资源集中在较大的校区。例如，我们在2024年扩大了上海和北京校区，以服务更多的学生。我们最近开设了ACG伦敦服务中心，将ACG的服务扩展到已被英国录取并刚刚开始海外生活的学生。在伦敦中心，我们提供学业辅导、学生社群与校友活动，以及职业发展支持。此外，还帮助学生在出国留学的头几个月安顿下来。对于研学服务来说，创新和持续推出新项目至关重要。为此，我们积极投资和探索艺术领域的新趋势，从基于计算机的艺术专业，如数字艺术、应用交互、游戏设计和人工智能生成的内容，到新的艺术主题和职业选择，如艺术治疗、绿色环保建筑和城市设计等。我们继续通过不断拓展国内和国际机构合作伙伴关系网络，扩大我们的全球影响力。在第三季度，我们与英国著名的音乐学院利兹音乐学院签署了新机构合作协议。利兹音乐学院的讲师将与ACG合作，为ACG的学生进行申请指导和讲授作品集准备技巧。此外，我们近期还与绿洲星辰教育科技达成战略合作，共同推进艺术与人工智能的融合。我们的期望通过绿洲星辰的人工智能技术和云平台，引入人工智能的支持，对现有的课程服务以及交互模式进行迭代升级，通过为学生提供更好的产品和服务来推动我们的长期增长。今年10月，我们继续举办联合国可持续发展目标的艺术集训营。这是自今年5月首次推出以来的第三期。我们还在10月举办上海时装周项目，让有志于未来学习和从事时装设计和时尚品牌管理职业的学生体会时装周的第一线。10月，ACG在中国10个城市举办了秋季艺术教育展，邀请罗德岛设计学院等学校的教授发表主题演讲，分享申请技巧。同时也邀请了ACG校友分享学习经验和职业建议。我们继续专注于增长学生基数，扩大受众范围，从希望寻求海外学习机会的学生，到希望拓展职业机会的在职人士，再到探索愿意探索多种艺术主题的人们。ACG的使命仍然为成为学生值得信赖的合作伙伴，无论他们处于学术或职业发展的哪个阶段，我们有能力做到这一点，并将会继续投资于我们的基础设施和教学团队，始终为学生提供高质量的服务。好，接下来进行问答环节。

[Alice Zhang, Head of Investor Relations at The Equity Group]

Thank you, Sima. Our growth strategy surrounds four main pillars: organic growth, strengthening and expanding geographic footprint, launch of new services, and potential M&A opportunities. Starting with organic growth. As Sima mentioned, we have been encouraging students to enroll in our portfolio training services to join the project-based track, which offers more flexible and customizable programs based on student needs. The overall strong enrollment trend that we're seeing in today's market is also exciting.

[Alice Zhang, Head of Investor Relations at The Equity Group]

We see more students from portfolio training services showing interest in our value-adding offerings, such as research-based learning and overseas study counseling services, resulting in increased student enrollment and hence increased revenue contribution. The engagement of our teaching staff in the sales and product design process has also helped us improve program quality and boost sales. We have expanded training center coverage in existing cities and concentrated regional resources on larger centers. For example, we expanded our Shanghai and Beijing centers to serve more students during 2024. We recently opened the ACG London Center, extending ACG services to our students who have been admitted to UK colleges and are just embarking on their overseas life. At the London Center, we provide academic assistance, student and alumni networking events, as well as career support, in addition to helping students settle down on their first few months of studying abroad.

[Alice Zhang, Head of Investor Relations at The Equity Group]

Innovation and introduction of new research-based learning programs have been crucial to growing that line of business. To that end, we actively invest and explore new trends in arts, from computer-based arts majors such as digital arts, user interaction, gaming design, and AI-generated content, to new arts themes and career options such as art therapists, green architecture, and urban design, and so on. We continue to extend our global reach through growing our domestic and international network of institutional partnerships. In third quarter 2024, we signed a new institutional partnership with Leeds Conservatoire, a prestigious music conservatory in the U.K., whereby Leeds Conservatoire lecturers will work with ACG in providing application insights and portfolio preparation tips to ACG students. In addition, we also recently initiated a strategic cooperation with Oasis Star Educational Technology to jointly promote the integration of art and artificial intelligence.

[Alice Zhang, Head of Investor Relations at The Equity Group]

Utilizing Oasis Star's AI technologies and cloud platform, we expect to introduce AI support in upgrading our existing offerings and service delivery model, fueling our long-term growth via better products and services to our students. This October, we again hosted the United Nations Sustainable Development Goals Arts Bootcamp, marking the third section of this series since we initially introduced it this May. We also hosted our Shanghai Fashion Week Program in October, bringing students to the forefront of fashion weeks for students interested in future study and career in fashion design and brand management. During October, ACG toured 10 cities in China as part of Autumn Art Education Exhibition, inviting professors from institutions such as Rhode Island School of Design to give key speeches and share application tips, and ACG alumni to share student study experience and career advice.

[Alice Zhang, Head of Investor Relations at The Equity Group]

We remain focused on growing our student registration, expanding demographics from students who want to pursue overseas study opportunities to working professionals who look to expand their career opportunities and to the general public who are willing to explore multiple topics of art. ACG's mission remains to act as a trusted partner for our students, regardless of where they are in their academic or career path. We're well equipped to do so, and we'll continue to invest in our infrastructure and the teaching team to always make high-quality offerings available to our students. With that, Operator, let's open it up for questions.

[Operator]

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate you're in the question queue. You may press star two if you would like to remove your question from the queue.

[Operator]

And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, it is star one on your telephone keypad. If you would like to ask a question, we will pause for a brief moment to see if any questions come in. Once again, it was star one on your telephone keypad. There are no questions at this time. I would like to turn it back over to Kevin for closing remarks.

[Kevin Xiaofeng Ma, Chairman and CEO at ATA Creativity Global]

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 or during our next earnings call. 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.

Participants

Executives

• Kevin Xiaofeng Ma, Chairman and CEO
• Ruobai Sima, CFO

Analysts

• Alice Zhang, Head of Investor Relations at The Equity Group
• Translator