ATA Creativity Global (AACG) on Q2 2022 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the ATA Creativity Global's Second Quarter 2022 Financial Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alice Zhang of the Equity Group. Please proceed.
Alice Zhang: Thank you, Hector, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global or ACG's results for the second quarter and 6 months ended June 30, 2022, 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 would also be 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 in 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, intent, look forward to, outlook, 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, market meant for and market acceptance and competitiveness of ACG's portfolio training programs and other education services. The impact of the COVID-19 pandemic on ACG and its operations and ACG's plan and anticipated benefits of the measures implemented in response to the COVID-19 in pandemic. 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 the for making 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 second quarter and 6 months ended June 30, 2022, are converted from RMB using an exchange rate of RMB 6.6981 to USD 1, the noon buying rate as of June 30, 2022. All historical conversions are accurate as of the time reported, unless otherwise noted. The company reports its financial results on the U.S. GAAP and R&D and all percentages calculated in the presentation are based on RMB unless otherwise noted. For those of you following along with the accompanying 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 a e-mail to the company. You made some e-mails to me, Alice Zhang by e-mailing avhang@equityny.com. On today's call, the company's CFO, Mr. Ruobai Sima will provide a brief interview of operating and financial highlights for the second quarter of 2022; Chairman and CEO, Mr. Kevin Ma; and President, Mr. Jun Zhang, will follow with an update on the company's 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, Sima.
Ruobai Sima: Thank you, Alice, and welcome, everyone, and good evening to those in America, and we appreciate everyone's time. And during the second quarter of 2022, and we were pleased that we continue supporting our students who chose to continue fulfilling their creative art education while online deliveries and due to local resurgence of COVID-19 in some of our core critics, including Shanghai and Beijing. For late March to early June, we temporarily closed some of our training centers to comply with local lockdown procedures. We are pleased that these restrictions have since been lifted, and we are able to serve our students in person like again. Total studio enrollment remained stable at 1,018 during the period compared to 1,051 in the second quarter of 2021. As a result of temporary training center closures and future lockdowns, total credit hours delivered for portfolio training program decreased by 10.8% compared to prior year period, which impacted our financials during the period. The impact on portfolio training and research-based learning revenues were partially offset by increased revenue contributions from overseas study counselling services with the public health situation in China improving once again. We expect demand for our portfolio training and research-based learning programs to rebound. We continue to see significant demand for oversea study program, and we are confident in ACG's ability to increase its market share in the international Creative Arts education industry. During the second quarter of 2022, we delivered a total of 25,387 credit hours for our portfolio training programs. We have continued to encourage the ongoing shift in our portfolio training mix in favor of project-based program versus time-based programs. This is evident in the breakdown, we are project-based programs, credit hours account for 57.8% of total credit hours delivered during the period. With that, let's move to financial highlights for the second quarter and first half over year. Total net revenue for the second quarter of 2022 were RMB 34 million compared to RMB 36.9 million in the second quarter of 2021. As mentioned earlier, the decrease was primarily due to the decreased contribution from the portfolio training and research-based learning services that were impacted by local COVID-19 resurgence and subsequent lockdowns in some of our key cities, including Shanghai and Beijing. Gross margin was 35.6%, compared to 43.4% in the prior year period. The decrease was primarily due to decreased revenues during the period, will cost of revenues remained relatively stable year-over-year. Net loss attributable to ACG was RMB 22.1 million, which compared to a net income attributable ACG of RMB 14.1 million in the prior year period. The difference here was primarily due to a onetime investment gain for RMB 33.5 million, as a result of the disposal of the company's K-12 education assessment business in the second quarter of 2021. Turning to the first half of 2022. Net revenue increased slightly to RMB 76.2 million, compared to RMB 74.4 million in the same period of 2021. Gross margin remained stable at 41.2% compared to 41.5% in the prior year period. Net loss attributable to ACG was RMB 37.9 million compared to RMB 4.9 million. Moving to the balance sheet. We continue to be in our solid financial position with USD 9 million in cash and cash equivalents. Working capital adjusted was USD 33.4 million, and total shareholder equity were USD 22.9 million at June 30, 2022, compared to working capital deficit of USD 30.2 million and shareholder equity of USD 30 million, respectively at December 31, 2021. With that, I'd like to turn it over to Kevin, who will expand upon our outlook and growth strategy. Kevin?
Kevin Ma: Thank you, Sima. While the ongoing and the environment increases some expected significance during the first half of the year, we were pleased with ACG's ability to prepay adopts . This is where our training centers were impacted by local lockdown in the second tier cities such as as well as top tier cities where with a lot of our students such as Shanghai, Beijing and choose to continue the study with ACG using online formats. Our vision is to deliver the qualities quicker and ongoing support for our students regardless of whether it's in-person or remote. In second quarter 2022, we continued to especially create a high-quality learning experience via online formats such as the ACG Oversees Master Program. We introduced the program to our students when they had met first began in early 2020, and we have seen interest in this runs go over the past 2 years even when the public situation was improving. During the quarter, we've also deployed the strategy to streamline our organizational structure, we began introducing full-time teaching staffing to ACG's internal management roles to help drive potential growth of the campaign by our sales and product development efforts in coalition to their day-to-day teaching responsibilities, we are able to quickly incorporate they received from our students into improving our operations. We believe this presents an opportunity for us to create a more direct line of communication with our sense to bid, understand and be prepared to reach involving must need. We believe our current portfolio of offerings and our efforts to enhance our to be related to today's event and their society leaving continues to ACG creativity arts education marketplace. We are optimistic about our outlook in the second half of 2022 and look forward to the coming application season where we can have to drive positive comps for our students. I'd now like to hand it 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 the English translation. Jun, please go ahead.
Jun Zhang:
Unidentified Company Representative: Thank you, Kevin. The systems and procedures that we have put into place in response to the COVID-19 pandemic in early 2020 have provided a strong foundation for our organization and has enabled us to be flexible when we're faced with unexpected circumstances. Since 2020, we have continued to invest in building, maintaining and advancing the technology, supporting our service delivery to ensure a seamless and pleasant learning experience for enrolled students. We understand that we continue to operate in an ongoing pandemic environment that could worsen at any given moment, and we remain alert in monitoring the situations at our training centers. This summer, we cooperated with one of the famous ceramic art centers in Jingdezhen and launched an exclusive program named through which our students learn about blue and white porcelain ceramic shaving, glass painting and hot melting techniques. The students also visited the studios of some word renowned to experience the creation process of master words and has the opportunity to exhibit their own work towards the end of the program. On the operations side, ACG continues to invest in upgrading our teaching system and developing new programs across major business lines. We will continue to provide online offerings and remain committed to being flexible and responsive in adjusting, upgrading and customizing our educational products as we acknowledge the various needs of our student population. In addition, ACG will introduce new programs that reflect the ever-evolving created industry, including programs with cutting-edge content related to Metaverse, NFTs and more. In the remainder of 2022, we will continue to focus on supporting our students in their Creativity Arts study. As Kevin mentioned, we expect to enter a busy application season this floor for those who choose to for their education overseas. We're also committed to solidifying our relationships with our institutional partners and remain confident that our first-class teaching staff, new marketing strategies that allow us to precisely target our potential student audience and the efforts to streamline our internal organization structure will enable us to grow the business. ACG's mission is to provide quality learning experiences that call and enhance students' curative. We continue to believe that our offering to rate stuff and mystery of helping our students achieve positive outcomes will differentiate us from our competitors. With that, I'll turn it back over to Kevin.
Kevin Ma: Thanks, Jun. In conclusion, we are proud to be serving a device student population and are pleased with the financial results we have been able to achieve despite the challenges in contrary to the 2022. ACG is committed to assisting our strengths with pursuing their growth in the creative arts and we expect to continue improving and expanding our portfolio of offerings to base serve them over the long term. With that, operator, let's bring it up for questions.
Operator:
Kevin Ma: Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach out to 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 quarterly call. Thank you.
End of Q&A:
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.
