ATA Creativity Global (AACG) on Q4 2024 Results - Earnings Call Transcript
Operator: Greetings. Welcome to ATA Creativity Global Fourth Quarter and Year End 2024 Financial Results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Alice Zhang with the Equity Group. Thank you. You may begin.
Alice Zhang: 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. 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 ATA Creativity Global's website. A simultaneous audio webcast is also accessible via the IR section of ATA Creativity Global's website, including the replay, which will be available for the next ninety days. ATA Creativity Global'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. CFO, Mr. Ruobai Sima, will provide an overview of financial and operating results for fourth quarter and year-end 2024 and briefly discuss 2025 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. With that, I'll turn the call over to ATA Creativity Global's Chairman and CEO, Mr. Kevin Ma. Please go ahead, Mr. Ma.
Kevin Ma: Thank you, Alice. Welcome to America. We appreciate everyone's time. As Alice mentioned, please refer to our earnings stake available on the IR site of our website. As we go through our prepared remarks, during 2024, with the mission of driving positive student outcomes in mind, ATA Creativity Global continued to concentrate on making college educational service available to our students. Our investment in the teaching team allowed us to introduce really good and customized offerings. And our efforts to expand and amend institutional partnerships expanded the access to world-class educational resources. We also actively explore new ways to improve overall operation efficiencies, from streaming operations and locating regional resources to initiating the integration of AI technologies into our service, which we believe will continue to drive long-term value to our operations. The fourth quarter of 2024 was highlighted by significant growth in net revenues and the bottom line results. We reported more than a 20% increase in net revenues, driving a similar level of improvement in our gross profit. Portfolio trading programs, credit hours delivered to ATA Creativity Global students increased by over 35% during the fourth quarter of 2024. As a result of increased revenues, net income attributable to ATA Creativity Global grew by 54.9% to RMB13.3 billion. Similarly, for the full year 2024, we reported a net revenue growth of since year one, Fintech, exceeding the high end of our full year guidance, which resulted in a 23.2% increase in gross profit for the year. Overall student enrollment rates continue to grow, and our core business for aerial training facilities recorded a significant decrease in student error rates, as well as a greater number of deliveries. Moving on to fourth quarter operation highlights, Portfolio Credit Service accounted for the majority of our revenues for the quarter, with project-based programs contributing to 66.8% total credit in our delivery. The demand for our portfolio trading service demand is strong, and we were pleased that we have been able to address this demand with the teaching team that students trust. We've organized small group classes, which allows more students to take lessons for popular teachers, has increased credit hours delivery while enhancing teaching efficiencies at the same time. Revenues from Rich Baader's overseas study and other educational services all increased by more than 46%. The cost of the optimization of the United Nations September development of course, our school boot camp, our Shanghai Fashion Week program, and several of Mastercard's covering arts topics like character, animation, visual communication, and interior design. As we turn to the 2025 application season, and many of our students have submitted their application portfolios to overseas schools, we are glad to share that our students have started to receive very well early admission results. So far, our students have received offers and scholarships from schools such as Hong Kong 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 services to two additional higher education institutions, the Central Academy of Drama and the Nanjing University of Arts. During the quarter, we made the strategic decision to discontinue our junior Arc service aiming to increase the overall efficiency of our operations, which contributed to a lower the G&A expense during the quarter. With that, I will hand over the call to Ruobai Sima for a detailed overview of our financial and operating results for the fourth quarter and the full year 2024, and to provide some guidance for fiscal year 2025.
Ruobai Sima: Thank you, Kevin. And I will start with the fourth quarter and full year financial metrics. Total net revenue for the fourth quarter of 2024 was RMB109 million, an increase of 20.7% from RMB83.6 million in the fourth quarter of 2023, which was primarily due to increased revenue contribution from Apollo training programs, research-based learnings, and overseas study company services. Gross profit for the fourth quarter of 2024 was RMB53.7 million, an increase of 21.6% from RMB52.4 million in the fourth quarter of 2023, primarily due to higher net revenues. Gross margin slightly increased to 63.1% during the fourth quarter of 2024, compared to 62.6% in the prior year period, mainly as a result of higher net revenues despite an increase in cost associated with more teaching staff hired as compared to the fourth quarter of 2023 to accommodate increased numbers of students. Total operating expenses were RMB46.8 million in the fourth quarter of 2024, an increase of 8% from RMB43.3 million in the fourth quarter of 2023. The increase was primarily due to an RMB6.8 million increase in sales selling expenses related to an increased number of sales personnel and marketing events in various different channels, which was partially offset by an RMB2.4 million decrease in general and administrative expenses mainly as a result of the disposal of ATA Creativity Global's junior R Services in the fourth quarter of 2024, and an RMB0.9 million decrease in R&D expenses as OTP system development was completed in Q2 2024. Income from operations in the fourth quarter of 2024 was RMB17 million, compared to RMB9.1 million in the fourth quarter of 2023. Net income attributable to ATA Creativity Global during the fourth quarter of 2024 was RMB13.3 million, compared to RMB8.6 million in the prior year period. Turning to full year 2024, total net revenues increased by 21% to RMB268.1 million from RMB221.6 million in the prior year period. The increase was primarily attributable to the increased contributions from portfolio training, research-based learning, and overseas study consulting services. Gross profit for the full year 2024 was RMB141.3 million, an increase of 23.2% from RMB114.7 million in the full year 2023, as a result of increased revenues during the full year 2024. Gross margin slightly improved to 52.7% from 51.7% in the full year 2023. Total operating expenses were RMB184 million in the full year 2024, an increase of 18.1% from RMB156.2 million in the full year 2023. The increase was primarily due to an 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 arts education equation and fusion arts exhibition, as well as an RMB8.1 million increase in general and administrative expenses related to increased professional fees and business expense-related investments, and was slightly offset by lower research and development expenses, which decreased by RMB0.9 million. Income from operations in the full year 2024 was RMB43 million, compared to RMB41.5 million in the full year 2023. Net loss attributable to ATA Creativity Global for the full year 2024 was RMB36.1 million, compared to RMB33.7 million. Moving to the balance sheet highlights, as of December 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 RMB79.6 million. Moving to year-to-date enrollment trends, for the full year 2024, total student enrollment increased by 15.8% as compared to the full year 2023, supported by strong student interest growth in both ATA Creativity Global's portfolio training and other programs. Portfolio training student enrollment for the full year 2024 increased by 12.9% to 2,807, and all other program student enrollment for the full year 2024 increased by 20.2% to 1,974. For the full year 2024, we continued 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 the 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%. With that, let's move to guidance for the full year 2025. ATA Creativity Global is proud to achieve total net revenues of between approximately RMB276 million to RMB281 million for the year ending December 31, 2025, which represents a year-over-year increase of around 3% to 5% from the full year 2024. We anticipate that the growth will be primarily driven by our portfolio training services, which is also a significant student acquisition channel for all of our other business. As more students sign up for our courses, we will end the full year 2024 with double-digit revenue growth and overall increased demand across our business lines following the COVID-19 international travel recovery. We expect full year 2025 growth to return to normalized levels, and we expect our business to record continuous growth and just believe that strategic initiatives that we are implementing extremely well depend on Yabit. Will drive our long-term growth in NPS 2025. I'd like to turn it to Jun Zhang, who will expand upon our long-term growth strategy. Jun Zhang, please go ahead.
Jun Zhang: Thank you so much. 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 career. We believe our long-term growth is fueled by organic growth, strengthening and expanding geographic footprint, launch of new services, and potential M&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 ATA Creativity Global's business and the market potential of creative arts education in China. We expect our organic growth to be supported by higher fee and higher margin services. 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 team's input into designing our course offerings, we 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 2025, to strengthen and expand our geographic footprint, ATA Creativity Global will continue to expand coverage in existing cities and strategically locate our regional resources to maximize operations at larger centers. In January 2025, ATA Creativity Global announced the grand opening of our ACG Japan Center, which focuses on Japanese language training and arts education. At the ACG Japan Center, we provide both online and in-person language training services and help students settle down after they arrive for their 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 are committed to helping students achieve their goals as a trusted partner throughout their journey with ATA Creativity Global. 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. 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 art camp in Sanya, Hainan province, Safari Photography Creation Camp in East Africa, Milan Fashion Week internship program, IB Leak Art Campus Tour on the East Coast of the US, and Alibaba artificial intelligence training camp. Last but not least, ATA Creativity Global remains diligent in actively exploring potential M&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. We are excited about our growth in 2025 and believe our investment in our teaching team and the strategic initiatives we take to improve our operating efficiency will continue to drive results for ATA Creativity Global and our shareholders. With that, operator, let's open it up for questions.
Operator: Before pressing the star keys. There are no questions at this time. I would like to turn the conference back over to Kevin Ma for closing remarks.
Kevin Ma: Thanks again to all of you joining us. To anyone who has questions for us, please feel free to reach out directly to us 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 earnings call. Thank you.
Operator: This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
