ATA Creativity Global Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 25, 2025

There are 4 speakers on the call.

Operator

As a reminder, this conference is being recorded.

Operator

It is now my pleasure to introduce Alice Zhang with The Equity Group. Thank you. 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 discussion 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 highlighting the company's fourth quarter and full year key operational and financial achievements.

Speaker 1

CFO, Mr. Robae Sima, will provide an overview of financial and operating results for fourth quarter and year end 2024 and briefly discuss twenty twenty five 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 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 Ma. Please go ahead, Mr. Ma.

Speaker 2

Thank you, Eric.

Speaker 3

Welcome everyone to the news in America. We appreciate everyone's time. As Eric mentioned, please refer to our earnings dig available on the IRR site of our website as we go through our prepared remarks. During 2024, with the mission of driving positive student outcomes in mind, ACG continued to concentrate on making college educational service available to our students. Our investment in the teaching team allowed us to introduce, deliver and customize the offering.

Speaker 3

And our efforts to finish and maintain institutional partnerships expanded the access to world class educational resources. We also actively explored new ways to improve overall operation efficiencies from streaming operations and locating regional resources to initiating the integration of AI technologies into our services, which we believe will continue to drive long term value to our operations. The fourth quarter of twenty twenty four was highlighted by significant growth in net revenues and the bottom line results. We reported more than 20% increase in net revenues, driving a similar level of improvement in our gross profit. For further trading programs, credit dollars delivered to ACEE studios increased by over 35% during the fourth quarter of twenty twenty four.

Speaker 3

As a result of increased revenues, net income attributable to ACG growth by 54.9% to RMB13.3 million. Similarly, for full year 2024, we reported a strong net revenue growth of 21%, exceeding in the high end of our full year guidance, which resulted in 23.2% increase in gross profit for the year. Overall student error rates continued to grow and our core business portfolio training services recorded a significant increase in student enrollment as well as present our deliveries. Moving on to fourth quarter operation highlights. Portfolio trading service accounted for the majority of our revenues for the quarter with project based programs contributing to 66.8% of total credit in our deliveries.

Speaker 3

The demand for our portfolio trading service demand is strong and we were pleased that we have been able to address those demands with the teaching team that students trust. We have organized more group classes, which allows more students to take lessons for popular teachers, has increased creating hours delivered with enhancing teaching efficiencies at the same time. Revenues from rich based learning, overseas study, consulting and other educational services all increased by more than four years. We hosted the optimization of the United Nations, the ten Boom Development Goals Arts Boot Camp, our Shanghai Fashion Week program and several master classes covering arts topics like craft, animation, visual communication and interior design. As we entered the 2025 application season and many of our students have submitted to the application portfolio to overseas schools, we are glad to share that our students have started to receive favorable early admission results.

Speaker 3

So far, our students have received offers and scholarships from schools such as Hollenheim University, Columbia University, Rhode Island School of Design in The United States and the University of the Arts London, University College London in The UK, as well as prestigious art schools in Japan, Hong Kong and Australia. At the same time, we continue to expand our partnership base and we began providing educational service to two additional higher education institutions, the Central Academy of Drama and the Nanjing University of Arts. During the quarter, we made this strategic decision to discontinue our junior art service, aiming to increase the overall efficiency of our operations, which contributed to a lower GM and A expense during the quarter. With that, I will hand over the call to Soma for a detailed overview of our financial and operating results for fourth quarter and the full year 2024 and provide some color on our guidance for fiscal year twenty twenty five.

Speaker 2

Thank you, Kevin. And I will start with the fourth quarter and full year 2024 financial metrics. Total net revenue for fourth quarter twenty twenty four was RMB109 million, an increase of 20.7% from RMB80 million in the fourth quarter twenty twenty three, which was primarily due to increased revenue contribution from portfolio training programs, research based learning and overseas study counseling services. Gross profit for fourth quarter twenty twenty four was RMB53.7 million, an increase of 21.6% from RMB52.4 million in fourth quarter twenty twenty three, primarily due to higher net revenues. Gross margin slightly increased to 63.1% during fourth quarter twenty twenty four compared to 62.6% in the prior year period, mainly as a result of higher net revenues despite an increase in costs associated with more teaching staff hired as compared to fourth quarter twenty twenty three to accommodate increased numbers of students.

Speaker 2

Total operating expenses was RMB46.8 million in fourth quarter twenty twenty four, an increase of 8% from RMB43.3 million in fourth quarter twenty twenty three. The increase was primarily due to RMB6.8 million increase in selling expenses related to increased number of sales personnel and marketing events in various different channels, which was partially offset by RMB2.4 million decrease in general and administrative expenses, mainly as a result of the disposal of ACP's Tuner R services in fourth quarter twenty twenty four and RMB0.9 million decrease in RMB expenses as ACG system development was completed in Q2 twenty twenty four. Income from operating in fourth quarter twenty twenty four was RMB17 million compared to RMB9.1 million in fourth quarter twenty twenty three. Net income attributable to ACG during fourth quarter twenty twenty four was RMB13.3 million compared to RMB8.6 million in the prior year period. Turning to full year 2024, total net revenues increased to 21% to RMB268.1 million from RMB221.6 million in the prior year period.

Speaker 2

The increase was primarily attributable to increased contributions from portfolio training, research based learning and overseas study consulting services. Gross profit for full year 2024 was RMB141.3 million, an increase of 23.2% from RMB114.7 million in full year 2023. As a result of increased revenues during full year 2024, gross margin slightly improved to 52.7% from 51.7% in full year 2023. Total operating expenses were RMB184.5 million in full year 2024, an increase of 18.1% from RMB156.2 million in full year 2023. The increase was primarily due to a RMB21.2 million increase in sales selling expenses as a result of the expansion of our sales team and an increase in marketing events such as the art education exhibition and fusion art exhibition, as well as RMB8.1 million increase in general and administrative expenses related to increased professional fees and business expansion related investments and was slightly offset by lower research and development expenses, which decreased by RMB0.9 million.

Speaker 2

Loss from operations in full year 2024 was RMB43 million compared to RMB41.5 million in the full year 2023. Net loss attributable to ACT full year 2024 was RMB36.1 million compared to RMB33.7 million. Move to the balance sheet highlights. As of 12/31/2024, we had RMB36.5 million in cash and cash equivalents, total assets of RMB456.9 million, total liabilities of RMB377.3 million and total shareholders' equity of RMB 79,600,000.0. Moving on to year to date enrollment trends.

Speaker 2

For full year 2024, total student enrollment increased by 15.8% as compared to full year 2023, supported by strong student interest growth in both APJ portfolio training and other programs. Portfolio training student enrollment for full year twenty twenty four increased by 12.9% to 2,807. And our other program students enrollment for full year twenty twenty four increased by 20.2 to nineteen seventy four. For full year twenty twenty four, we continue to record higher credit hours delivered from the second half of the year, similar to prior year results as our students started to prepare for portfolio work. For full year 2024, credit hours delivered significantly increased by 30.8%, whereby time based program credit hours increased by 32% and project based program credit hours increased by 30.2%.

Speaker 2

With that, let's move to guidance for the full year 2025. ACG expects to achieve total net revenues of between approximately million to RMB281 million for the year end at 12/31/2025, which represent a year over year increase of around 3% to 5% from the full year 2024. We anticipate that growth to be primarily driven by our portfolio training services, which is also significantly student acquisition channels for all of our other business as more students sign up for our services. We will use full year 2024. We saw double digit revenue growth and overall increased demand across our business lines following the COVID-nineteen international traveling recovery.

Speaker 2

We expect full year 2025 growth to return to normalized levels, and we expect our business to record continuous growth and believe that strategy initiatives that we are implementing, which we will expand on EBIT, will drive our long term growth in and beyond 2025. I'd like to turn it to Jun, who will expand upon our long term growth strategy. Jun, please go ahead. Thank you.

Speaker 1

Thank you, Soma. For 2025 and beyond, our goal remains to be a leading provider of creative arts education services and products in China to students interested in a creative arts education and Korea. We believe our long term growth is fueled by organic growth, strengthening and expanding geographic footprint, launch of new services and potential M and A opportunities. The strong growth trend we observed in student enrollment and services delivered as well as in our internal sales records have reinforced our confidence in the ACG's business and the market potential of the creative arts education in China. We expect our organic growth to be supported by higher fee and higher margin services.

Speaker 1

For one, encouraging students interested in our portfolio training services to enroll in a project based track, which offers higher value services compared to time based programs due to its flexibility and customizability. Furthermore, we expect positive student feedback on our core portfolio training services to drive increased interest in our other services, such as research based learning and overseas study counseling services. With our frontline teachers and sales teams input into designing our course offerings, we've released our capabilities to introduce new and unique research based learning experiences and a growing student interest in our overseas study counseling services will continue to fuel revenue growth and gross margin improvement. For twenty twenty five, to strengthen and expand our geographic footprint, ACG will continue to expand coverage in existing cities and strategically locate our regional resources to maximize operations at larger centers. In January 2025, ACG announced the grand opening of our education.

Speaker 1

At the ACG Japan Center, we provide both online and in person language training services and help students settle down after they arrive for the future study as well as tutoring students on their application portfolios and hosting various arts events. The opening of the ACG Japan Center follows the opening of our London Center in September 2024, which has since been actively serving students in London and surrounding areas. We're committed to helping students achieve their goals as a trusted partner throughout their journey with ACG. We have invested in the innovation and introduction of new research based learning projects, which have become an increasingly substantial part of our revenue source. Since the beginning of 2025, we have introduced various experiences in both in person and online formats, serving students of different age groups and with various arts backgrounds and majors.

Speaker 1

These programs included creative arts healing training program led by University of London lecturers, Japanese classic animation study tour in Tokyo, Sea Island Environmental Protection Creative Arts Camp in San Yahanam Province, Safari Photography Creation Camp in East Africa, Malang Fashion Week Internship Program, Ivy League Art Campus Tour in East Coast Of The U. S. And Alibaba Artificial Intelligence Training Camp. Last but not least, ACG remains diligent in actively exploring potential M and A opportunities in 2025 to supplement our service portfolio of high quality creative arts education products to our students. Serving our students with the best offerings is at the core of our business, especially as we continue to expand our student population and address the evolving needs of our students.

Speaker 1

We're excited about our growth in 2025 and believe our investment in our teaching team and the strategic initiatives we take to improve operating efficiency will continue to drive results for ACG and our shareholders. With that, operator, let's open it up for questions.

Operator

Thank There are no questions at this time. I would like to turn the conference back over 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 out directly to us or our Investor Relations firm, The ACT 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.

Powered by Quartr
Earnings Conference Call
ATA Creativity Global Q4 2024
00:00 / 00:00