ATA Creativity Global Q1 2025 Earnings Call Transcript

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May 16, 2025

There are 4 speakers on the call.

Operator

Greetings. Welcome to the ATA Creativity Global First Quarter twenty twenty five Financial Results Conference 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 Ng of The Equity Group. Thank you. You may begin.

Speaker 1

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.

Speaker 1

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 ninety days. ACG's Chairman and CEO, Mr. Kevin Ma, will start this call by highlighting the company's first quarter twenty twenty five key operational achievements and financial highlights.

Speaker 1

CFO, Mr. Robai Suma, will provide an overview of financial and operating results for first quarter twenty twenty five 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.

Speaker 1

With that, I'll turn the call over to ACG's Chairman and CEO, Mr. Kevin Li. Please go ahead, Mr. Ma.

Speaker 2

Thank you, Alice, and welcome, everyone. Good morning to those in America. We appreciate everyone's time. Q1 twenty twenty five was highlighted by a pretty mixed 16% increase in net revenue and gross profit respectively, driven by increased contribution from portfolio training and research based learning service. Portfolio training program created in our delivery to ACG students increased by 5.8% during the first quarter of twenty twenty five.

Speaker 2

Higher net revenues and slightly reduced operating expenses contributed to improved bottom line results during the quarter as compared to Q1 twenty twenty four. Moving on to first quarter operation highlights. Portfolio trading service continued to account for the majority of our revenue for the quarter. Total credit hours delivered increased by 5.8% with project based programs contributing about 74% of total credit hours delivered, translating into 11.5% growth in revenue from the portfolio training programs. Combined revenues from the research based learning overseas studies consulting and other educational service also increased by more than 28% and it became increased revenue contribute responsible for nearly 30% of the total net revenue.

Speaker 2

During first quarter twenty twenty five, we brought a variety of in person and online research based learning projects to ASEG students. In person projects included named campus to Hainan Province and AI training campus at Alibaba, hosted The United States and the Japan Milan session week projects in Italy engaging a total of more than 100 students. Apart from delivering our usual level of master class projects to students in online group class format, we also hosted a creative arts therapy training program taught by University of London Lectures, which accommodated around eight students in total. We continue to receive a positive feedback from our students about the fall twenty twenty five admission results. During first quarter twenty twenty five, ACG students received numerous admission from prestigious overseas institutions, major legal schools, other top schools admissions to name a few came from Cambridge University, Hong Kong University, Nine Young Neurological University and so on.

Speaker 2

Also, our students have received offers from top art schools, some of which are the most popular match with extremely high application requirements and overall low acceptance rate including the MFA in film and television production at the University of South California, architecture at UC Berkeley and engineering design innovation at North West University. We remain excited about the upcoming admission results for the remainder of the fall twenty twenty five application series. We are proud to announce that on March 29, ACG was awarded the 2025 Forbes China Studying Abroad Leading Brand along with new Oriental Education and new channel International Education. On the twenty twenty five International Education Leaders Annual Conference and the Forbes China Studies Abroad Industrial Selection Series Awards ceremony. We are pleased that the company 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.

Speaker 2

In March, ACG carried five key cities in China as a part of our spring arts education exhibition, including Beijing, Shanghai, Wuhan, Chengdu and Chongqing, Similar to the October Autumn Art Education Expedition, we hosted seminars to discuss the last art design topics and observation of overseas study application changes and the mission 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 first quarter twenty twenty five.

Speaker 3

Thank you, Kevin, and I will start with fourth quarter twenty twenty five key financial metrics. Total net revenues for fourth quarter twenty twenty five were million, an increase of 15.9% from RMB48.1 million in fourth quarter twenty twenty four, 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 fourth quarter twenty twenty five was RMB25.4 million, an increase of 15.9% from RMB21.9 million in fourth quarter twenty twenty four, primarily due to higher net revenues. Gross margin was 45.5% during fourth quarter twenty twenty five and changed as compared to 45.5% in the prior year period. Total operating expenses were million in fourth quarter twenty twenty five, slightly decreasing from RMB43.6 million in fourth quarter twenty twenty four.

Speaker 3

Whereas a percentage of net revenue, total operating expenses decreased to 75.6% during fourth quarter twenty twenty five compared to 90.6% in the prior year period. The slight decrease in operating expenses was due to a million decrease in selling expenses and RMB0.3 million decrease in research and development expenses as ACT system development was completed in Q2 twenty twenty four. And collection of previously impaired loans and other receivables, offset by a RMB4 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 lower operating expenses, loss from operations in fourth quarter twenty twenty five was RMB16.8 million compared to RMB21.7 million in the fourth quarter twenty twenty four. Net loss attributable to ACG during the fourth quarter twenty twenty five was RMB13.3 million compared to RMB17.9 million in the prior year period.

Speaker 3

Moving to the balance sheet highlights. As of March 2025, we have RMB 39,400,000.0 in cash and cash equivalents, total assets of RMB 457,000,000, total liabilities of RMB390.9 million and total shareholders' equity of RMB66.4 million. Moving to year to date enrollment trends. Starting with student enrollment. For fourth quarter twenty twenty five, total student enrollment was eleven oh four, representing a decrease of 19.4% from the prior year period.

Speaker 3

The decrease in student enrollment was a result of normalized demand in our service in 2025 versus same period in 2024 and 2023. As we discussed in the fiscal year twenty twenty five outlook last quarter. Portfolio training students enrollment for fourth quarter twenty twenty five was six twenty six and student enrollment for all other programs for fourth quarter twenty twenty five was four seventy eight. Moving on to credit hours delivered. For fourth quarter twenty twenty five, 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 and credit hours.

Speaker 3

With that, let's move to our expectations for the full year 2025. We expect to report total net revenues of between approximately RMB $276,000,000 to RMB 2,000,000 for the year ended December 2025, which represents a year over year increase of around 3% to 5% for 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 twenty twenty five guidance range, And these assumptions are based on the company's existing business initiatives and the rate for the year end December 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.

Speaker 3

Jun, please go ahead.

Speaker 1

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.

Speaker 1

We're proud to be able to continue to make quality offerings accessible to a growing student population and remain enthusiastic about the creative arts education market in China. 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. We're helping students complete their portfolio creation projects more efficiently through mindful planning and intensified coaching.

Speaker 1

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 teacher 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 base and overseas study counseling programs, contributing to a more substantial part of our revenue growth. 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 generation who are looking for experiential learning opportunities in our studies, workshops and sim travels. For second quarter twenty twenty five, 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 and visual communication, jewelry design and interactive sensation.

Speaker 1

We expect to launch more research based learning experiences in the third 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 UK and The U. S. This has helped expand our access to global resources and assisted increased number of students who are now exploring study abroad options in more destinations, including Europe, Japan and Southeast Asia such as Singapore.

Speaker 1

We believe our competitive advantages are built on a long term domestic 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

Thank you. We will now be conducting a question and answer session. Thank you. I'm showing no questions at this time. I would now like to hand the call back over to Mr.

Operator

Kevin Ma for any closing remarks.

Speaker 2

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

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.

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ATA Creativity Global Q1 2025
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