Earnings Call: Q1 2021

May 14, 2021

Earnings release

Greetings, and welcome to ATA Creativity Global's First Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Caroline Stone of The Equity Group. Thank you. You may begin. Thank you, operator, and hello, everyone. Thank you for joining us. The press release announcing ATA Creativity Global's or ACG's results for the Q1 ended March 31, 2021 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 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, expect future, plan, outlook and will 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 demand for ACG's portfolio training programs and other education services, the impact of COVID-nineteen on ACG and its operations, and ACG's planned and anticipated benefits of the measures implemented in response to COVID-nineteen. While the company believes that the expectations reflected in 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 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 Q1 ended March 31, 2021 are converted from RMB using exchange rate of RMB 6 point 5581 8 to 1 dollars the noon buying rate as of March 31, 2021. All historical conversions are accurate as of the time reported unless otherwise noted. The company reports its financial results under U. S. GAAP and RMB and all percentages calculated in the presentation are based on RMB unless otherwise noted. For those of you 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 and A session or via e mail to the company. On today's call, the company's CFO, Ms. Amy Tung, will provide a brief overview of operating and financial highlights for the Q1 of 2021. Chairman and CEO, 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, Ms. Amy Tang. Please go ahead, Amy. Thank you, Tianline, and welcome, everyone. Good evening to those in America. We appreciate everyone's time. We are pleased to have gotten off to a strong start to the year, reporting a 41.6% increase in total student enrollment to 964 students in the Q1 of the year. In the promising sign that we are fully in the post pandemic recovery, we saw significant year over year growth across our major programs, portfolio training, overseas study counseling, research based learning and foreign language training. Our primary offering, the portfolio training program, enrolled 528 students during the period, an increase of 30.7% from 404 in the same period last year. Credit hours delivered for portfolio training increased 5.5% to 27,865. Having risen to meet the challenges of the 2020 pandemic, which will tilt us an opportunity to reinforce the foundation of our business and explore additional growth areas, we are gratified to begin realizing some of the tangible results of these efforts here in the Q1 of 2021, which is generally impacted by some seasonality due to the timing of the spring festival holiday. We are hopeful that the road to recovery will continue on a positive trajectory as recommendations against COVID-nineteen progress globally. At this time, we are working closely with our overseas partner institutions to be clear for our summer programs. Given the current circumstances of the global pandemic, we have determined with our partners to offer alternative programming to students this summer. International travel continues to be in a place of uncertainty, and we feel this is the best way to maintain the health and safety of our students. We are pleased to be offering domestic learning experiences in China as well as various online boot camps in partnership with overseas institutions. With that, let's move to financials for the quarter. Total net revenues for the Q1 of 2021 increased 15% to rmb37.6 million from rmb32.7 million in the Q1 of 2020. This top line improvement was primarily driven by an overall increase in services delivered across our major programs as we continued to recover in the post pandemic environment. Gross margin was 39.6% during the 2021 Q1, up from 35.8% in the prior year period. Net loss attributable to ACG improved to CNY 19,000,000 from CNY 20,500,000 in the prior year period. This was primarily a result of an approximate RMB3.2 million improvement in loss from operations during the period, which was offset by an RMB1.7 million in these benefits from non repayable non controlling interest. Moving to the balance sheet. We continue to be in a solid financial position with US14.6 million dollars in cash and cash equivalents. Working capital deficit was US26.5 million dollars and total shareholders' equity was US27.2 million dollars at March 31, 2021, compared to working capital deficits of US23.6 million dollars and shareholders' equity of US30.5 million dollars respectively at December 31, 2020. With that, I would now like to turn it over to Kevin, who will expand the point of outlook and growth strategy. Kevin? Thank you, Henry. We are extremely pleased to see the turnaround demonstrated by the elements we achieved during the Q1 of 2021. Over 40% year over year growth in total elements with increased across all lines of business is a very promising start to the year. As the public health situation in China has remained stable over the past several months, we are optimistic that this positive element will continue over the course of the year as more and more of the global population gets vaccinated against the COVID-nineteen and we maintain this path to a post pandemic recovery. This will be aided by our new centralized system for monitoring self leads as well as the newer offering we have launched in the past year. ATG's stellar reputation has been upheld by the consistent quality of our curriculum and the teaching staff as well as the positive outcomes we have helped students who are pursuing which study achieve. This is regardless of where coursework is delivered in person or online. Our mission is to provide students with all the tools and the support they need for success at ACG and we believe we are better equipped to deliver on this promise than before. In a post pandemic world, I believe most everyone is looking to take advantage of real world experience where we can fully interact with one another face to face. This test learning is an excellent asset that offers a great deal of flexibility, but we can't experience a place if you don't actually go there in person. That being said, many students continue to be interested in pursuing study abroad and we are prepared to meet that demand when it's safe to do so. As Andy mentioned, it's unlike that we will be offering international study abroad programs as our partner institution has decided this is the best path forward and the current circumstance. We are pleased that students have enjoyed the new domestic travel programs and online boot camp alternatives we have developed and look forward to once again working with our partners to make those options available this summer. I'd now like to hand the floor over to Jun Zhang, FHG's President, to provide an update on our current growth initiatives. Jun will make his remarks in Mandarin, which will be followed by English translation. Jun, please go ahead. Thank you, Thank you, Kevin. During the Q1 of 2021, we continued to offer in person delivery of course work with an option to complete some courses online. We anticipate expanding our online course offerings and continue to develop completely new programming as well. In response to the pandemic, we put a great deal of effort into developing our research based learning services and have been quite pleased with positive reception of our new domestic educational tours and online boot camps and internship opportunities. We found new and innovative ways to continue partnering with overseas institutions despite the restrictions on international travel and can anticipate continuing to do so as we head into summer 2021. We are prepared to support the demand for research based learning experiences regardless of how worldwide travel is impacted and look forward to working with our partner institutions on virtual programming for this summer. We continue looking at ways in which we can leverage technology throughout the ECG organization. It is now a crucial component of our education delivery method as well as our sales process and will enable us to better utilize the talents of our teaching staff in 2021. With the help of technology, we look forward to serving a larger population of students across China and providing them with opportunities to study the creative arts that may not otherwise have had access to. With that, I'll turn it back over to Ken. Thanks, Jun and Carrie. In closing, ATE believes we are well positioned both operationally and financially to capitalize on the various growth opportunities before us. Particularly, as the world continues on a road to recovery post pandemic, students that decided to postpone their studies are gradually resuming their coursework and several persisted throughout the pandemic with great success. We are honored to have played a role in their success. Everyone is stay safe and healthy. With that, operator, let's open it up for questions. There seems to be no questions at this time. So I'll pass it back over to management for any closing remarks. Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach our directory to us or our Investor Relations firm, The Act Group. We are always available to speak to investors and look forward to speaking with you all during our next quarterly call. Thank you. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.