ATA Creativity Global

NASDAQ:AACG

Greetings, and welcome to the ATA Creativity Global Fourth Quarter and Year-End 2023 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Carolyn Sohn, Vice President. Thank you, Carolyn. You may begin.

Thank you, operator, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global or ACG's results for the fourth quarter and year ended December 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 contains 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, guidance, plan, 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, ACG's 2024 guidance, market demand for and market acceptance and competitiveness of ACG's portfolio training programs and other education services. Although the company believes that the expectations reflected in these 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 the 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 2 of the conference call presentation for further information. All U.S. dollar amounts in this conference call relating to financial results for the fourth quarter and year ended December 31, 2023, are converted from RMB using an exchange rate of RMB 7.099 to U.S. dollar. The new buying rate as of December 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 percentages 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 3. 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 the 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 fourth quarter and full year of 2023. As Chairman and CEO, Mr. Kevin Ma, is unable to be here today. Mr. Sima will join President Mr. Jun Zhang in providing an update on the company's 2024 guidance outlook and its 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.

Thank you, Carolyne, and welcome, everyone, and good evening to those in the Americas, and we appreciate your last time. 2023 was an important year for ACG. It was the fourth year assume the coin pregame where we were able to deliver a complete year of person class delivery, we are continuing to make select courses available with online delivery. I'm pleased to report that the company achieved RMB 221.5 million in revenue for full year 2023, a 7.2% increase year-over-year. This was a result of renewed shown interest on ER portfolio training, overstay consulting and rebased learning services at COVID-related travel to attrition and the local shutdowns was lifted at the start of 2023, enabling students to return online campus superiority and resume planning for our sale. Over the course of 2023, we also continue to line of operating cloud and were able to marginally decrease our operating expenses. As a result of the increased revenues and decreased operating expenses, we significantly improved our bottom line narrowing net loss by 29.7% for full year 2023. We were excited to hold overseas summer camps for the fourth time since the pandemic, and we're pleased that students continuing to find their offering valuable to their overall parent in reaching their academic study well reinforcing their hero pursue our career in our. Total student enrollment for fourth quarter 2023 award 1,011 compared to 908 in the prior year period. Student enrollment increased 11.3% year-over-year, mainly as a result of more students who enrolled in our portfolio training services and overseas study company services. During the period, portfolio training credit hours delivered increased 3.3% to 48,421. At the same time, we continue to deliver a variety of experiential programs to our students as we have received a positive build feedback on this offering. Rig introduced additional relevant hands-on type of programs in the future. With that I will quickly review financials. Total net revenues for the fourth quarter 2023 increased 6.5% to RMB 83.6 million compared to RMB 78.5 million in the fourth quarter of 2022. This was primarily driven by increased revenues from portfolio training and overseas study consulting services. Portfolio training services represented 77.4% of total net revenues during the period. Gross margin improved to 62.6% during fourth quarter 2023 compared to 60.6% in the prior year period. The increase in gross margin was primarily due to increased net revenue. We reported net income attributable to ACG of RMB 8.6 million during fourth quarter of 2023, an increase of 324.1% from RMB 2 million in the prior year period. During the full year results of 2023, net revenue increased 7.2% to RMB 221.6 million from RMB 206.8 million in the prior year period. Gross margin improved to 51.7% from 49.6% in the prior year. Net loss attributable to ACG narrowed to RMB 33.7 million compared to a net loss of RMB 47.9 million, primarily due to increase in revenue and decreased operating expenses. More to balance sheet, we continue to strengthen our financial position ending the year USD 8.5 million in cash and cash equivalents, a 9.4% increase from the end of 2022. Working capital density was USD 34.4 million, and total shareholders was USD 15.9 million at December 31, 2023, compared to working capital benefit of USD 33 million and shareholder equity of USD 20.8 million at December 31, 2022. Now turning to our attention to ASG's outlook and growth strategy. With the lifting of pandemic-related restrictions at the start of 2023. We were very pleased to be able to resume in-person class deliveries as all our training center locations throughout China especially with education and creative art. There is just no substitute for phase-to-phase collaboration between students and their peers and between students and their professors. We believe it is a critical element of our mission of delivering positive student outcomes. In 2024, our portfolio training services offering remains the core component of our business. This is also the key part of our curriculum that prepare students for to create a complete portfolio of their work with the ACG, which is a request to applying to our colleges and grad schools. Through portfolio training services, we promote our offerings in research-based learning and overseas study consulting services, which make for a comprehensive and real rounded students experience here in ACG in addition to focusing on growing our existing business. We are also proactively exploring partnerships with creative art institutions around the world. During fourth quarter 2023, we successfully hosted multiple winter programs, including our regular Master Class, the October Shanghai Fashion Week program and part-time assist program. This program allow participating students to pull some of their academic knowledge into practice by promoting opportunities to work in a professional setting and gaining a better understanding of how the contract they have explore in the classroom and applied in real-world scenarios. We were pleased with the positive reception by both our students and our enterprise partners with whom our students worked closely. As of March 2024, many of our students have received favorable admission results from renowned art institutions and program worldwide. This positive outcome as per our continuous efforts in helping students achieve their academic goals. We look forward to hearing more good news from our students who have demonstrated and paralyzed determination and creativity throughout their journey. Last slide, we are pleased to provide the following revenue guidance for fiscal year 2024. For the year-end December 24, 2024, we expect total net revenue of between RMB 233 million to RMB 255 million, which represents a 5% to 15% increase from fiscal year 2023. Please note that the revenue guidance for fiscal year 2024 does not consider any potential acquisitions or other business transactions we may complete in 2024. As any material developments arise, we will be sure to update the market and to evaluate guidance as appropriate. I'd now 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] [Interpreted]

Thank you, Mr. Sima. Thank you. 2023 was a fantastic year for our students, and we were pleased to be able to deliver a full year of stable operation, which we believe is important to our communities peace of mind and capacity for delivering outstanding work. I would like to take a moment to thank our teaching staff for their commitment to driving positive student outcomes and our students for their perseverance and entrusting ACG with their creative arts journey. We are proud to have served all types of students with our quality offerings, which would not have been possible without the dedication of our entire staff and our strong network of institutional partnerships. Since the beginning of 2024, we have enrolled students into our regular research-based learning programs, such as the March Open Hack Shanghai Fashion Week program. Participating students will have the opportunity to interview designers and explore global fashion trends while creating branding proposals and fashion lookbook designs. The program also provides internship opportunities and reference letters. The first Shanghai Fashion Week Program takes place in late March and the second will be in October. We also offered several master classes with professors and lectures from prestigious art schools such as the University of Arts London and Rhode Island School Design covering a wide range of arts topics, including architecture design, user interface design, animation, and comics and so on. We strive to introduce offerings that reflect student interest and demand by listening continuous feedback from the student community and ensuring that we understand new trends in arts academia and industry with the belief that such offerings are not only relevant and state of the art, but also bring value for students interested in various art forms. In addition, for the first time since the pandemic, we resumed our Arts Study Tour U.S. universities this winter break, and brought 12 students to the campuses of 8 top arts institutions in Rhode Island, New York and Los Angeles, including Parsons New School for Design, Rhode Island School of Design and Pratt Institute, et cetera. We were pleased to provide participating students with an opportunity to experience a variety of different campuses, allowing them to better envision what it would be like to study at these institutions. I would also like to highlight our efforts in expanding the student population we serve by providing additional offering students coming from nontraditional academic backgrounds. For example, the ACG International Art Foundation Program Center, which we founded in 2021 initiated a new diploma program in cooperation with Singapore-based Raffles College of Higher Education, introducing a 4-year bachelor's program for junior high school graduates. Enrolled students will spend a year in our Beijing Center for our Foundation program and then study in Singapore for a 3-year bachelor's program, after which they will receive a bachelor's degree. This new diploma program as well as other offerings currently available by the Foundation Center to support students in building a solid foundation with an ultimate goal of applying and gaining mission to select colleges in the U.K., Italy and Japan. The ability to expand these programs and enroll more students into the ACG Foundation Center has strengthened our confidence in serving a growing group of potential students and driving positive outcomes for them. In 2024, we remain focused on serving our students. We believe our comprehensive portfolio of quality academic and ancillary offerings, our history of enabling excellent student outcomes and our growing network of institutional partnerships represent our core competency in the creative arts education market in China. We are well positioned to continue growing our share in this fragmented market and look forward to continuing to strive for better on behalf of all our stakeholders. With that, I'll turn it back over to Mr. Sima.

Thanks, Jun and Carolyne. In closing, we are attracted about ACG's outlook for 2024. As a leading player in the China accretive education space, we are committed to provide providing high-quality, relevant and valuable superior to our students. We also continue to explore opportunities to enhance our business and value proposition, which we believe will increase shareholder value and the ask about some of these prospects. With that, operator, let's open it up for questions.

[Operator Instructions] There are no further questions at this time. I'd like to turn the floor back over to Mr. Sima for closing comments.

Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach out directly in to us or our Investor Relations firm, 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.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.