ATA Creativity Global Q3 2024 Earnings Call Transcript

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November 7, 2024

There are 4 speakers on the call.

Operator

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

Operator

Thank you. Alice, you may begin.

Speaker 1

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 statements. Please refer to the company's most recent SEC filings for a more complete description of various factors that could affect these 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 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 Mah, will start this call highlighting the company's Q3 9 months key operational and financial achievements.

Speaker 1

CFO, Mr. Robail Simah, will provide an overview of financial and operating results for Q3 9 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.

Speaker 1

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

Speaker 2

Thank you, Eddie. Welcome, everyone. Good evening to the hosting America. I appreciate everyone's time. As Eric mentioned, please refer to our earnings deck available on the IR side of our website as we go through our prepared remarks.

Speaker 2

During Q3 of 2024, ACG continued to focus on providing quality service to our valued students and parents, developing product and service offering compared to our students' growing and evolving needs, exploring new partnerships with institutions within the art industry as well as seeking collaboration opportunities across different industries. As announced, Q3 of 2024 was a strong quarter for ACG in terms of net revenues and student enrollment. We reported double digit growth in net revenues and overall student enrollment rate. This is highlighted by strong student element for our portfolio training programs as well as increased credit hour deliveries during the period. For 9 months 2024, we saw equal strong year over year improvement as net revenues, overall airmanage rate and credit hour deliveries all increased by more than 20% compared to 9 months 2023.

Speaker 2

Before we continue to this demand, our main source of revenues, contributing more than 70% of our total revenues for both Q3 2024 and 9 months 2024. Within this part of the service, we continue to encourage them to sign up for project based programs. As a result, this segment continues to account for the majority of our portfolio trading service, service, responsible for 70% of total credit in our deliveries during the Q3. Thanks to our continuous effort in developing various programs and offerings, we are also seeing a growing interest in other parts of our service. Student elements for research based learning and overseas study consulting increased by more than 20% compared to the Q3 2023.

Speaker 2

For this summer, our pilot projects include the 2nd session of the United Nations Sustainable Development Goals after the campus. 2 Intangible Culture Heritage Campos in China, 1 U. S. Campus tour and 2 summer campus in London and Tokyo. In addition, for the first time since the pandemic, apart from our usually online master classes, we also hosted the ACG Summer Lab, providing students with the opportunity to study in person with the lectures joining us from which just part institutions and the art studios in general.

Speaker 2

We believe the capability to provide us various experience is one of ACG's core competence in the rich arts market, which is due to our continuous investment in the close monitoring of the arts trends in the academia and the industry, as well as the strong global partnership network that allowed us across the world class resources. During Q3 2024, we continued to expand our partnership network by division new strategic partnership with Lease Ancillary in the UK and also to start educational technology, which start educational technology, which John will which Jim will extend our legs. With that, I will hand over the call to Suma for a detailed overview of our financial and operating results for the Q3 and 9 months 2024 and our guidance for fiscal year 2024.

Speaker 3

Thank you, Kevin. And I will start with 3rd quarter and 9 months key financial metrics. Total net revenues for Q3 2024 were RMB67.3 million, an an increase of 13.1 percent from RMB59.5 million in Q3 2023, which was primarily due to increased revenue contributions from research based learning and portfolio training services. Gross profit from Q3 2024 was RMB30 1,000,000, an increase of 2.6 percent from RMB29.2 million in the Q3 of 2023. Gross margin was 44.6% during Q3 of 2024 compared to 49.2% in the prior year period.

Speaker 3

The decrease in gross margin was mainly a result of higher costs related to more teaching staff here as compared to Q3 2023 to accommodate increased numbers of students and the larger outsourcing costs related to research based learning services. Total operating expenses were RMB47.7 million in Q3 2024, an increase of 28.4 percent from RMB37.1 million

Speaker 2

in the

Speaker 3

Q3 of 2023. The increase was primarily due to an RMB5.4 million increase in sales expenses related to increased number of sales personnel and marketing events, as well as RMB5.6 million increase in general and administrative expenses related to increased professional fees and business expansion related investments. As a result, loss from operations in Q3 2024 was RMB17.6 million, compared to RMB7.9 million in Q3 2023. Net loss attributable to ACG during Q3 2024 was RMB14.7 million, compared to RMB7.3 million in the prior year period. Turning to 9 months 2024, total net revenues increased 21.1 percent to RMB167.1 million from RMB138 1,000,000 in the prior year period.

Speaker 3

The increase was primarily attributed to increased contributions from portfolio training, research based learning and overseas study counseling services. Gross profit for 9 months 2024 was RMB77.6 million, an increase of 24.6 percent from RMB62.3 million in 9 months in 2023. As a result of increased revenues during 9 months 2024, gross margin slightly improved to 46.4 percent from 45.1 percent in 9 months 2023. Total operating expense was RMB137.7 million in 9 months 2024, an increase of 22% from RMB112.9 million in 9 months 2023. The increase was primarily due to RMB14.4 million increase in sales expenses related to increased number of sales personnel to drive sales growth as well as RMB10.5 million increase in general and administrative expenses related to increased professional fees and business expansion related investments.

Speaker 3

As a result, loss from operations in 9 months 2024 was RMB60 1,000,000 compared to RMB50.6 million in 9 months 2023. Net loss attributable to ACJ in 9 months 2024 was RMB49.4 million compared to RMB42.2 million. Moving to the balance sheet highlights. As of September 30, 2024, we had RMB39.4 million in cash and cash equivalents, total assets of RMB459.4 million, total liabilities of RMB300 and 93.2 million and total shareholders' equity of RMB 66.2 million. Moving on to year to date enrollment trends.

Speaker 3

For 9 months 2024, total student enrollment increased by 20% as compared to 9 months 2023, supported by strong students' interest growth in both PCC portfolio training and all other programs. Portfolio training students' enrollment for 9 months 2024 increased by 20.7% to 2,220 and all other program students' enrollment for 9 months 2024 increased by 19.1% to 1523. Credit hours delivered for portfolio training services and historically higher due to seasonal reasons and students eagerly started their portfolio creation work in the second half of the year for enrollment in the following fall semester. For 9 months 2024, credit hours delivered significantly increase by 28.5%, whereby time based programs' credit hours increased by 29% and project based programs IDRs increased by 28.3%. We remain committed to offering high quality services across our business lines and to students who face guidance and support in their pursuit of value and a clear RDR.

Speaker 3

With that, let's move into guidance to full year 2024. We believe we are on track to achieve our full year 2024 revenue guidance for RMB233 to RMB255 1,000,000, representing a year over year increase of 5% to 15% for full year 2023. 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 skill gains acquisition channel for our other business. I'd like to turn it over to Jun who will expand upon our long term growth strategy.

Speaker 3

Jun, please go ahead. Jun, please go ahead.

Speaker 1

Thank you, Sima. Our growth strategy surrounds 4 main pillars: organic growth, strengthening and expanding geographic footprint, launch of new services and potential M and A opportunities. Starting with organic growth, as Simba 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. 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.

Speaker 1

The engagement of our teaching staff in sales and product design process has also helped us improve program quality and boost sales. We have expanding 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 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 Centre, we provide academic assistance, student and alumni networking events, as well as creative support, in addition to helping students settle down on their 1st few months of studying abroad.

Speaker 1

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 art from computer based arts majors such as digital arts, user interaction, gaming design and AI generated content to new art themes and career options such as art therapists, great architecture and urban design and so on. We continue to extend our global reach through growing our domestic and international network of institutional partnership. In Q3 2024, we signed a new institutional partnership with Leeds Conservatoire, a prestigious music conservatoire in the UK, 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 Start Education Technology to jointly promote the integration of art and artificial intelligence.

Speaker 1

Utilizing Oasis Start'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 Boot Camp, marking the 3rd section of this series since we initially introduced it this May. We also hosted our Shanghai Fashion Week program in October, bringing students to 4th form of Fashion Week 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 our awesome art education exhibition, inviting professors from institutions such as Rhode Island School of Design to give themed speeches and share application tips and ACG alumni to share study experience and career advice. 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.

Speaker 1

ACG's mission remains to act as a trusted partner for our students, regardless of where they are in the 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 There are no questions at this time. I would like to turn it back over to Kevin for closing remarks.

Speaker 2

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

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