ATA Creativity Global (AACG) Earnings Call Transcript & Summary

Greetings. Welcome to the ATA Creativity Global First Quarter 2025 Financial Results Conference Call. [Operator Instructions]. 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.

Thank you, operator. Good morning to all of you joining us from the United States and 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 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 2 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 first quarter 2025 key operational achievements and financial highlights. CFO, Mr. Ruobai Sima, will provide an overview of financial and operating results for first 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 Ma. Please go ahead, Mr. Ma.

Thank you, Alice, and welcome, everyone. Good morning to those in America. We appreciate everyone's time. Q1 2025 was highlighted by [ approx ] 16% increase in net revenue and gross profit, respectively, driven by increased contribution from Portfolio Training and Research-based learning services. Portfolio Training Program credited hours delivered to ACG students increased by 5.8% during the first 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 first quarter operational highlights. Portfolio Training service continued to account for the majority of our revenue for the quarter. Total credited hours delivered increased by 5.8% with project-based programs contributing about 74% of total credited hours delivered, translating into 11.5% growth in revenue from the Portfolio Training Programs. Combined revenues from the research-based learning, overseas studies consultant and other educational services also increased by more than 28% and it became increased revenue contributor, responsible for nearly 30% of total net revenues. During first 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, an AI training camp at Alibaba, tours to United States and Japan, Milan Fashion Week project in Italy, engaging a total of more than 100 students. Apart from delivering our usual [ land ] of Master Class projects to students in an online group class format, we also hosted a creative art therapy training program taught by University of London-Lectures, which accommodated around [ 8 ] students in total. We continue to receive positive feedback from our students about the full 2025 admission results. During first quarter 2025, ACG students received numerous admission from prestigious overseas institutions, including major Ivy League schools, other top schools admissions to name a few came 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 major with extremely high application requirements and overall low acceptance rate, including the MFA in film and television production at the University of South California, at UC Berkeley and Engineering design, innovation and Northwestern University. We remain excited about the upcoming admission results for the remainder of the fall 2025 application season. We are proud to announce that on March 29, ACG was awarded the 2025 Forbes China Study Abroad Leading brand, along with New Oriental Education and New China 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 abroad. In March, ACG toured 5 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 similars to discuss the [ largest ] art design topics and observation of overseas study application changes and admission trends, giving -- participating students and parents a face-to-face opportunity to communicate with professors from prestigious overseas art institutions. With that, I will hand over the call to Sima for [Technical Difficulty ] first quarter 2025.

Thank you, Kevin, and I will start with fourth quarter 2025 key financial metrics. Total net revenues for fourth quarter 2025 were RMB 55.8 million, an increase of 15.9% from RMB 48.1 million in fourth 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 fourth quarter 2025 was RMB 25.4 million, an increase of 15.9% from RMB 21.9 million in fourth quarter 2024, primarily due to higher net revenues. Gross margin was 45.5% during fourth quarter 2025, unchanged as compared to 45.5% in the prior year period. Total operating expenses were RMB 42.2 million in fourth quarter 2025, slightly decreasing from RMB 43.6 million in fourth quarter 2024. While as a percentage of net revenue, total operating expenses decreased to 75.6% during fourth quarter 2025, compared to 90.6% in the prior year period. The slight decrease in operating expenses was due to RMB 1.3 million decrease in selling expenses. 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 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 lower operating expenses, loss from operations in fourth quarter 2025 was RMB 16.8 million compared to RMB 21.7 million in the fourth quarter 2024. Net loss attributable to ACG during fourth quarter 2025 was RMB 13.3 million compared to RMB 17.9 million in the prior year period. Moving to the balance sheet highlights. At 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 fourth 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 same period in 2024 and 2023, as we discussed in the fiscal year 2025 outlook last quarter. Portfolio Training student enrollment for fourth quarter 2025 was 626 and student enrollment for all other programs for fourth quarter 2025 was 478. Moving on to credit hour delivered. For fourth 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 approximately RMB 276 million to RMB 281 million for the year ended December 31, 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 2025 guidance range, and these assumptions are based on the company's existing business initiatives and rate for the year-end December 31, 2025, and the current and preliminary 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.

[Interpreted]. 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 remain enthusiastic about the creative arts education market in China. We expect our organic growth among all 4 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. 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. On top of that, we're actively leveraging our teaching resources and our current portfolio of services to address expanded student base, serving older adults and younger generation who are looking for experiential learning opportunities in art cities, workshops and [ intervals ]. For second 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 master class offerings covering stage design, digital media visual communication, jewelry design and interactive sensation. 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 U.K. and the U.S. 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 lectures from esteemed schools globally and the continuous investment in introducing new offerings. With that, operator, let's open it up for questions.

[Operator Instructions]. 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.

Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach out directly to 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.

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. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]