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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings. And welcome to ATA Creativity Global’s First Quarter 2023 Financial Results Call. At time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference call is being recorded.
It is now my pleasure to introduce your host Alice Zhang with the Equity Group. Thank you, Alice. You may begin.
Thank you, Camilla, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global’s or ACG’s results for the first quarter ended March 31, 2023, is available at the IR section of the company’s website at www.atai.net.cn. As part of this conference call, the company has an accompanying slide presentation available on its website. A replay of this broadcast will also be made available at ACG’s website for the next 90 days.
Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contain certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be identified by terms such as anticipate, believe, could, estimate, expect, forecast, future, intend, look forward to, outlook, plans, should, will, and similar terms and include, among other things, statements regarding ACG’s future growth and results of operations, ACG’s plans for mergers and acquisitions generally, ACG’s growth strategy, anticipated growth prospects and subsequent business activities including initatives taken by ACG as Chinese public health situation has been improved, market demand for and market acceptance and competitiveness of ACG’s portfolio training program and other education services, and the impact of the COVID-19 pandemic on ACG and its operations.
Although the company believes that the expectations reflected in its forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected. There can be no assurance that those expectations will prove to be correct. Information about risks associated with investing in ACG is included in its filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision.
The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law. Regarding the disclaimer language, I would also like to refer you to Slide two of the conference call presentation for further information. All U.S. dollars mounts announced in this conference call relating to financial results for first quarter ended March 31, 2023, are converted from RMB using an exchange rate of RMB6.8676 to $1, the noon buying rate as of March 31, 2023. All historical conversions are accurate as of the time reported, unless otherwise noted. The company reports its financial results under U.S. GAAP in RMB, and all percentage is calculated in the presentation are based on RMB unless otherwise noted.
For those of you following along with the company PowerPoint presentation, there is an overview of the company on Slide three. In addition, we are more than happy to take investor questions during today’s Q&A session or via e-mail to the company. If you wish to ask questions, you can send your questions to the e-mail address azhang@equityny.com. And please specify whether you would like to have your name read during Q&A session.
On today’s call, the company’s CFO, Mr. Ruobai Sima, will provide a brief overview of operating and financial highlights for the first quarter 2023. As Chairman and CEO, Mr. Kevin Ma is unable to be here today due to personal reasons. Mr. Sima will join President, Mr. Jun Zhang, in providing an update of the company’s outlook and long-term growth strategy before opening the floor for questions.
With that, I’ll turn the call over to ACG’s CFO, Mr. Ruobai Sima. Please go ahead, Mr. Sima.
Thank you, Alice, and welcome, everyone. Good evening to those in America. We appreciate everyone’s time. 2023, we got up to a soft start of ACG, we still do kind of teaching staff back in the classroom across our 21 training centers nationwide.
We were pleased to report our 10% increase in student enrollments during the first quarter, which was driven by a notable increase in portfolio training student. We have stable total net revenue of RMB42.3 million, which was supported by the portfolio training services and overseas study counselling services business.
Everyone at ACG is working hard in anticipation of launching our overseas summer camps and pilot programs that will be held during the summer for the fourth time since the pandemic began in 2020. And we have seen strong demand from students for the summer progress.
Total student enrollment for first quarter 2023 was 1,097, a increase of 10% from 997 in the prior year period, exclude the 171 student who enrolling for foreign language training business ACG disposed of in Third Quarter 2022.
The enrollment increase which have been 32.8%, enrollment in our core portfolio training programs increased more than 20% with 648 students enrolled during first quarter 2023 compared to 537 student in the prior year period.
We had delivered 27,630 credit hours for our portfolio training programs. We are more flexible project-based portfolio training programs accounting for approximately two-third of our portfolio training credit hours delivered.
We continue to encourage our students to opt from project-based programs, and more favorable mix shift contributing to improve operational efficiencies, giving us an opportunity to grow revenue without sacrificing the quality of teaching.
With that let's move to financials for first quarter 2023. Total net revenue for first quarter 2023 remain stable at RMB42.3 million compared to RMB42.1 million in the fourth quarter of 2022. This was primarily driven by portfolio training in overseas study counselling services.
Portfolio training services representative 64.6% of total net revenue during the period. Gross margin was 44.3% during the first quarter 2023 compared to 45.7% in the prior year period. The decrease in gross margin was primarily due to the increased cost of service related to higher compensation expenses incurred for certain teaching staff or engaged in the enhanced efficiency and the quality of service delivery, an initiative that began in the second quarter of 2022.
Net loss attribute to ACG was RMB17.8 million during first quarters 2023 compared to RMB15.9 million in the prior-year period, which was preliminary result of increased sales expenses related to performance bonuses awarded in line with enrollment growth during the period.
Moving to the balance sheet. We continue to be in a solid financial position with US$9.6 million in cash and cash equivalents, working capital deficit was US$35.5 million and total shareholders equity was the US$18.4 million at March 31, 2022 compared to working capital deficit of U.S.$ dollar 43 million and shareholders equity of US dollar 20.8 million respectively as December 31, 2022.
Now, turning our attention to ACG outlook and capital growth strategy. We are delighted to welcome all of our students back in person at our training centers the start of 2023. There is a pandemic largely behind us, we were pleased to have achieved such strong enrollment being driven by our core portfolio training service business, resulting in consistent revenues for the quarter driven by the portfolio training and overseas study counselling services, have managed students preparing to apply for overseas education, since many countries including China have relaxed travel restrictions.
They recently launched with long-term [ph] strategy, introducing a new contemporary logo and motto "Beyond the Differences" they believe these new elements try to reflect our goal of helping students find the courage and the determination to be their authentic selves and embrace original thought and expression.
And we think today students will identify with our philosophy and approach to creative education. If you pride yourself on being an innovatible and forward thinking organization, and we hope to instill in our students allow for creativity and sharing of ideas among the different peoples from different places and life circumstances.
Enrollment during first quarter 2023, appear to mark the start of a positive trend within our research-based learning services business, as many students have financial for our various overseas camps they had plan for this summer.
This program of overseas student college run [Indiscernible] in the summer season. And we anticipate thinking full advantage of the strong demand of these programs in 2023. We continue to work closely with our overseas institutional partners, and teaching staff and looking forward to delivering rewarding experiences to our student, clearly we'll expand upon our portfolio of offerings.
We would also like to congratulate student who hold the different college application process and are finally being rewarded for their efforts with admission letters from their training schools.
For the application submitted in academic year 2022, ACG'S students have had continued success with offers of admission coming from College of Norwich, Royal College of Art, Howard University, Columbia University, and [Indiscernible] through uncertain pandemic environment and are thrilled to see them continue fulfilling their creative education at schools for their term [ph].
We are optimistic that we are by and large operating in a post pandemic year. As we also observing slowing in our business due to the improved public health situation and opening up for international travel. We believe we are well-positioned to continue exactly accelerating our growth initiatives, including extending our partnership, as well as our portfolio of offerings.
With the help of our institutional partners and our ability to continuously adapt our offerings to serve the changing market, we are eager to continue delivering positive building outcomes and strengthen our reputation in the creative arts education industry.
I'd like to hand the floor over to Jun Zhang, ACG's President to provide an update on our current growth initiatives. Jun will make his remarks in mandarin, which will be followed by an English translation. Jun please go ahead.
[Foreign Language]
Thank you. Mr. Sima. We're honored to have served so many students who have remained committed to the creative service education during the past few challenging years.
Our goal during this time has been to continue providing a quality curriculum, access and support from teachers and staff, guiding them from start to finish on a competitive portfolio, and then reaching their education with hands on art related experiences.
Our hope is that all of this will eventually culminate in a student having a well rounded education and experience that would set them apart from others who are applying for school.
We believe a track record of positive student outcomes sets us apart from the competition, and we expect to be on the current momentum and continue to grow our business by providing superior art education experiences to our students.
ACG have continued to offer immersive research based learning projects. We're excited about overseas summer camps we're currently enrolling students in. one of the projects is a summer school at University of the Arts London, all participating students will be able to take courses designed for each stage of the art study on a UL campus and immediately engaged in an English speaking environment.
We're also offering a future of design exploration work and hosted in the Netherlands and Denmark, through which students will learn about the current and future design trends and be exposed to the interdisciplinary methodologies.
The goal is for students to independently create a design proposal. Students who participate in this project will receive certificates of completion at the end of the camps, and one-on-one study opportunities with some of the greatest minds in a particular areas of creative arts.
We're very excited to be offering this summer programs this year, and cannot wait to hear from students about their experiences. We continue to be committed to offering valuable, insightful research-based learning experiences to our students.
We believe first quarter 2023 mark an inflection point for our business. With a favorable operating environment given relaxed domestic and international travel restrictions at the beginning of the year. We're seeing an increasing number of students re engaged in the pursuit of a creative arts education and study abroad opportunities.
We're confident in our ability to serve a wide range of students, both those who have followed a more traditional education and those who have opted to follow a non-traditional path of study and continue to actively explore various service options to meet the needs of all student types.
Our mission continues to be to provide quality learning experiences that cultivate and enhance student's creativity. In a post pandemic environment, we believe we're well prepared to take advantage of the recovering market and strengthening our leading position in the creative arts education market in China.
With that, I'll turn it back over to Mr. Sima.
Thanks Zhang. In closing we are excited about opportunities for us in 2023 and feel confidence in our ability to see the opportunities ahead of us. Our top priority remains our students and we look forward to continuing to explore ways in which we think we can do our services to better support the creative art journey.
With that operator, let's open it up for questions.
Thank you. We will now be conducting a question and answer session. [Operator Instructions].
As we wait for questions to queue, I received some questions via email from William Gregozeski from Greenridge Global that I would like to post to the management team. I'll start with this one. Was there any COVID related impact on the first quarter numbers? Or is it a true reflection of the period?
Thank you. I think, yes, of course, I think [Indiscernible] during the -- after the COVID period. But maybe for one figure, I think for the sales volume, I think, which is very directly reflected. But I think it will continue -- I think compare for the last -- for the same quarter last year, I think we have taken a very great increase. And maybe the total sales is around RMB50 million and to around RMB80 million. But also we come here with the same figure and this is for the same period in 2019, I mean, the period before the COVID-19 occurred. And I think we also take a very big increase that from it. The total sales volume increase from RMB60 million to RMB90 million. I think this average means that this increase is not only from the COVID impact, but its also from some natural increase. Beside of these, I think we notice that this increase is not similar increase from enrollment numbers, but also inputs about the unit [ph] price. So in that way, I think that figure can reflect the real situation of increase during the period of the year. Thank you.
Thanks, Mr. Sima for the answer. The second question I have is, can we expect to see student enrollment and credit hours increase on a year-on-year basis for the remainder of 2023?
Yes. I think we hope that this trend can be continued. I think our portfolio got bigger and bigger. And currently we still believe that its increase over key business -- their increase trend on the following is positive.
Great. Appreciate the answer. One last question from Bill is, where do you think you need to be in terms of enrollment or credit hours to reach profitability? And do you have the cash to get there?
I think in order to get probability is not as simple question here to just simply and increase enrollment or credit hours. I think, of course, and for the marketing side, I think that our sales volume increase is a one way and beside of these and we also try to develop more new business lines, and also we have made our pricing methodology more closer to the class of marketing, situation changes. And beside of these maybe will also focus on our internal controls. I think we've made our operating and more efficiency, and we'll focus on cost controls and the teaching management and more efficient, and I think in that way we can enhance our operating efficiencies. By those approaches, I think we're going to make our cash management balance and exactly I think we can gather data and to make our probability. Thank you.
Great, thank you. That's all the questions from Bill. I'll hand it back to the main Q&A session now. Thank you.
Thank you. [Operator Instructions] There are no questions at this time. I would like to turn the floor over to Mr. Sima, CFO for closing comments.
Thanks again to all of you for joining us. If anyone have questions for us, please feel free to reach out directly to us or our investor relation form the faculty group. We are always available to speak to you afterwards and look forward to speaking with you all during our next quarter call. Thank you.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.