Q3 2025 ATA Creativity Global Earnings Call

Speaker #1: Greetings. Welcome to ATA Creativity Global Q3 2025 financial results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Speaker #1: If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Alice Sang with the Equity Group.

Speaker #1: Thank you, Alice. You may

Speaker #1: begin. Thank you,

Speaker #2: Operator: Good evening to all of you joining us from the United States, and good morning 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.

Speaker #2: 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. The company assumes no obligation to update forward-looking statements as a result of new information, future events, or otherwise.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: ACG's CFO, Mr. Robert Sima, will start this call by highlighting the company's third quarter 2025 key operational achievements and financial highlights. He will then provide an overview of financial and operating results for the third quarter and nine months of 2025.

Speaker #2: 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.

Speaker #2: 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 CFO, Mr. Robert Sima.

Speaker #2: Please go ahead, Mr.

Speaker #2: Sima, thank you. Alice, and welcome.

Speaker #3: Everyone, and good evening to those in America. We appreciate everyone's time. As Alice mentioned, please refer to our earnings deck available on the IR side of our website, and we will go through our prepared remarks.

Speaker #3: We reported relatively stable net revenue for the third quarter of 2025. Well, for the nine months of 2025, we delivered revenue growth of 7.1%, as a result of increased contributions from research-based learnings, overseas study counseling, and other educational services.

Speaker #3: During the third quarter of 2025, our main revenue contributors remain portfolio training services, accounting for 71.9% of total net revenue. Project-based program credit hours delivered increased by 22.9% compared to the third quarter of 2024.

Speaker #3: And contributed to over 80% of total credit hours delivered. Revenues from research-based learning and overseas study counseling increased during the period compared to the prior year period.

Speaker #3: searches delivered. During this As a result of more summer, we had a series of online and in-person research-based learnings experienced that accommodated over 500 students.

Speaker #3: This experiential project included recruiting and new initiatives. From online master classes to our UN Sustainable Development Goals, our boot camp featured a total of 14 summer labs lectured by instructors from prestigious schools in the UK and the US.

Speaker #3: Fashion Week program. In addition, we co-developed and conducted an in-person 10-day summer lab with Hong Kong Polytechnic University, focusing on digital entertainment media design, which was held on the PolyU campus.

Speaker #3: At this incentive summer lab, students gathered firsthand learning experiences in the areas of virtual reality and augmented reality technologies. They walked away with their own design solutions and certificates of attendance issued by Poly U.

Speaker #3: As I enter the registration period of the 2026 academic year, our nationwide network of campus locations, as well as our ACG Beijing Foundation Center, continued to welcome and support new students who are exploring study abroad opportunities with an expanding services offering.

Speaker #3: Prepare them for the upcoming application season. I will now move on to a detailed overview of our financial and operating results for the third quarter and nine months of 2025.

Speaker #3: I've provided some additional color on expectations for fiscal year 2025. Starting with third quarter 2025 key financial metrics, total net revenues for third quarter 2025 were RMB 67.3 million, relatively stable as compared to the third quarter 2024.

Speaker #3: Gross margin for the third quarter 2025 was RMB 26.4 million, compared to RMB 30 million in the third quarter 2024. Affected by higher costs of revenues related to research-based learning services, outsourcing costs, and part-time teacher costs, gross margin was 39.2% during the third quarter 2025, compared to 44.6% in the prior year period.

Speaker #3: Total operating expense was RMB 77 million in the third quarter of 2025, a decrease of 22.4% from RMB 97.7 million in the third quarter of 2024.

Speaker #3: Well, as a percentage of net revenues, total operating expenses significantly decreased to 54.9% during the third quarter of 2025, compared to 70.9% in the prior year period.

Speaker #3: The decrease in operating expenses was due to a RMB 5.9 million decrease in sales expenses related to lower headcounts in sales personnel. A RMB 4.8 million decrease in general and administrative expenses resulted from decreased professional fees and lower investment in new project development.

Speaker #3: Well, research and development expenses remained relatively stable. As a result of lowering operating expenses, the loss from operations in the third quarter of 2025 narrowed to RMB 10.6 million, from RMB 17.6 million in the third quarter of 2024.

Speaker #3: Net income attributed to ACG during the third quarter of 2025 was RMB 2.4 million, compared to a net loss attributed to ACG of RMB 14.7 million in the prior period.

Speaker #3: Primarily due to a one-time gain from a previous investment, total net revenues increased 7.1% to RMB 179 million in the nine months ending September 2025, compared to RMB 167.1 million in the prior year period.

Speaker #3: The increase was primarily attributed to increased contributions from research-based learnings and overseas study counselings, and other educational services. Gross profit for nine months 2025 was RMB 80.1 million, an increase of 3.2% from RMB 77.6 million in nine months 2024.

Speaker #3: As a result of increased revenues, this was partially offset by increased outsourcing costs during the period. Gross margin was 44.7%, compared to 46.4% in the nine months of 2024.

Speaker #3: Total operating expenses were RMB 121.3 million for the nine months ended 2025, representing a decrease of 11.9% from RMB 137.7 million for the nine months ended 2024. As a percentage of net revenues, total operating expenses decreased to 67.8% from 82.4% in the prior year period.

Speaker #3: The decrease was primarily due to an RMB 9.8 million decrease in sales expenses as a result of lowering headcount in sales personnel and decreased sales incentives, compared to nine months in 2024.

Speaker #3: And a RMB 0.5 million decrease in research and development expenses, as well as a RMB 2.3 million decrease in general and administrative expenses, reflecting the accounting impact on purchase price allocation from a previously completed acquisition.

Speaker #3: As a result of increased revenues and decreased operating expenses, the loss from operating operations in nine months of 2025 narrowed to RMB 41.1 million, compared to RMB 60 million in nine months of 2024.

Speaker #3: Net loss attributed to ACG in the nine months of 2025 was RMB 21.7 million, compared to RMB 49.4 million. Moving to the balance sheet highlights, as of September 30, 2025, we had RMB 96.8 million in cash and cash equivalents, total assets of RMB 462.5 million, total liabilities of RMB 403.7 million, and total shareholder equity of RMB 58.8 million.

Speaker #3: Moving on to year-to-date enrollment trends. Starting with student enrollment, for third quarter 2025, total student enrollment was 1,052, compared to 1,289 in the prior year period. This decrease was a result of normalized demand for our service in 2025.

Speaker #3: Portfolio training students' enrollment for the third quarter of 2025 was 585, and the students' enrollment for all other programs for the third quarter of 2025 was 467. Moving on to credit hours delivered.

Speaker #3: For the third quarter of 2025, credit hours delivered slightly increased by 5.6% compared to the prior year period. We reported a 22.9% increase in project-based programs, which has become the primary choice for students as a result of our conscious efforts to encourage them to pursue more flexible and customizable tracks.

Speaker #3: With that, let's move to our expectations for the full year 2025. We believe we are on track to achieve total net revenues of between RMB 276 million and RMB 281 million for the year ending December 31, 2025.

Speaker #3: Which represents a year-over-year increase of around 3% to 5% from the full year 2024. We anticipate portfolio training to remain the main pillar of our revenue, accompanied by increased contributions from all other lines of business.

Speaker #3: As we continue to improve current offerings and introduce new programs, our fiscal year 2025 guidance range and relevant assumptions are based on the company's current business operations.

Speaker #3: Initiatives underway for the year-end December 31, 2025, and the current and preliminary view of existing domestic and international market conditions, which are all subject to change.

Speaker #3: I'd now like to turn it over to Jun, who will expand upon our long-term growth strategy. Jun, please go.

Speaker #2: Thank you. 接下来我将谈谈我们长期增长计划的一些近期执行亮点。多年来，ACG一直因其在创意艺术教育与为学生带来积极成果的能力而受到业界和学生的广泛认可。我们对此深感自豪。我们有机增长，立足于提供切合需求、精心设计的课程，以满足学员日积变化的需求。过去几个季度，我们不仅通过有针对性的努力，使项目制作品集服务占据了交付主要比例，还积极优化产品组合，确保其始终与学员需求同频，从而持续夯实核心业务基石。作品集培训服务的高满意度，与此同时，我们着力拓展研学与留学服务，以迎合日益增长的多年龄层不同艺术背景的学员群体。我们的业务增长源于对高质量作品集服务的坚持，以及学员对我们的增长。我们增值产品的兴趣，而这也使我们的学员能够打造出极具竞争力的作品集。在运营层面，ACG持续对提高整体运营效率的举措进行探索。重点体现在销售费用的精细化管控与区域教学资源的战略性调配，展望未来，我们计划逐步整合市场活跃度。较低的校区，同时持续扩大全国在线教室的容量。这一战略尤其切合计算机设计、游戏设计、用户交互等学科加速向数字化、技术驱动模式的转型和趋势。第四季度，我们正式推出由卡内基美隆大学、哈佛大学、伦敦艺术大学及皇家艺术学院导师联合研发授课的在线大师课。依托于海外院校及讲师建立的长期合作关系，我们为ACG学员提供大师课服务，让这些学员得以深入探索用户设计、数字情感语言设计、数字媒体、装置艺术等前沿艺术领域，作为沉浸式体验国际时装周的重要环节。我们延续传统的在上海时装周的项目，让学员亲自参与品牌从营销策略、大片拍摄、专访到全案执行的完整流程，获得动态全面的学习体验。作为中国创意艺术教育服务的领先者，我们始终致力于激发学员潜能，助力他们实现学术与职业理想，引导每位学员步入梦想学府。展望2025年余下的时间及2026年，我们坚信持续的战略投入、严格的执行力，以对成本管理的高度重视，将为公司创造可持续的价值。通过平衡业务扩张与运营效率，我们希望这些举措将巩固我们的市场地位，提升学员成果，并支撑长期盈利增长。在发展进程中，我们确保在扩大规模的同时持续交付高质量的教学服务，并在动态竞争的市场中保持财务韧性与运营的敏捷性。

Speaker #3: Thank you, Sun. I will now discuss more recent execution highlights of our long-term growth initiatives. For years, ACG's project has been recognized by the industry and our students for our capability to drive positive outcomes for those interested in creative arts.

Speaker #3: Our organic growth is built on providing relevant and mindfully designed class offerings to satisfy our students' evolving needs. During the past quarters, in addition to our intentional efforts that led to project-based portfolio training services accounting for the majority of our credit hours delivered, we also actively took on approaches to ensure our product mixture keeps up with our students' demands.

Speaker #3: Thus, we are maintaining a high satisfaction level towards our main portfolio training services, which are the cornerstone of our key business. At the same time, we've focused on expanding our research-based learning and overseas study counseling services.

Speaker #3: Catering to a growing student population with an expanded age group and diverse arts backgrounds, our business growth is driven by our commitment to delivering high-quality portfolio training services and growing student interest in our value-adding offerings that together contribute to a strong and competitive application portfolio.

Speaker #3: In the meantime, ACG has been exploring initiatives to improve overall operating efficiency, highlighted by our efforts to streamline selling expenses and the strategic reallocation of regional teaching resources.

Speaker #3: Going forward, ACG plans to gradually consolidate select campuses in less active markets while continuing to expand online for our students across the country. This approach is especially relevant as many disciplines, such as computer design, gaming design, and user interaction, continue to evolve toward more digital and technology-driven formats.

Speaker #3: In Q4, we are introducing new online masterclasses, co-developed and lectured by instructors from Carnegie Mellon University, Harvard University, as well as University of Arts London and Royal College of Art.

Speaker #3: Through the long-term partnerships we have built with overseas schools and lecturers, we made these masterclasses available to ACG students, offering them the opportunity to explore emerging art topics such as user design, digital love language design, digital media prototype, and installation arts.

Speaker #3: As part of our fashion design programs that immerse students in fashion weeks all over the world, we continue to host our hands-on backstage traditional Shanghai Fashion Week project.

Speaker #3: Through this initiative, students gain firsthand exposure to the full spectrum of brand fashion week activities, from marketing and photo shooting to interviews and full execution, providing a dynamic and comprehensive learning experience.

Speaker #3: As a leading provider of creative arts educational services in China, we are dedicated to empowering ACG students to achieve their full potential and realize their academic and professional goals, guiding and supporting them every step of the way toward a mission to their dream schools.

Speaker #3: For the remainder of 2025 and into 2026, we remain confident that our ongoing investments in strategic growth initiatives, combined with disciplined execution and a strong focus on cost management, will drive sustainable value creation for the company.

Speaker #3: By carefully balancing expansion with operating efficiency, we expect these efforts to strengthen our market position, enhance student outcomes, and support a long-term trajectory of profitable growth.

Speaker #3: Our approach ensures that as we scale, we continue to deliver high-quality educational services while maintaining financial resilience and operational agility. In a dynamic and competitive market, with that overview, let's open it up for discussion.

Speaker #3: questions. Thank you.

Speaker #2: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your place in the question queue.

Speaker #2: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset.

Speaker #2: Before pressing the star keys, one moment while we pull for questions. There are no questions at this time. I would like to reiterate that there are no further questions at this time.

Speaker #2: I would like to turn the conference back over to Mr. Seema for closing remarks.

Speaker #1: Thank you. And 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 team at Form the Equity Group.

Speaker #1: We are always available to speak with investors and look forward to speaking with you all during our next learning call. Thank you.

Speaker #1: you. Thank you.