ATA Creativity (AACG) - 2025 Q1 - Quarterly Report

Q1 2025 Earnings Announcement Overview Headline Summary ATA Creativity Global (ACG) announced unaudited Q1 2025 financial results, with net revenues and gross profit both increasing by 15.9%, focusing on providing quality learning experiences to foster student creativity - ACG announced Q1 2025 financial results, with net revenues and gross profit both increasing by 15.9%[2] - The company is dedicated to providing international education services that cultivate and enhance students' creativity[2] Currency Conversion Rate All USD amounts in this press release are based on the exchange rate of RMB 7.2567 to USD 1.00 as of March 31, 2025 - All USD amounts are converted at an exchange rate of RMB 7.2567 to USD 1.00 as of March 31, 2025[3] Q1 2025 Highlights Financial Highlights In Q1 2025, ACG achieved a 15.9% increase in both net revenues and gross profit, with net loss narrowing year-over-year, while cash and cash equivalents slightly increased Q1 2025 Financial Highlights | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (%) | | :--------------------------- | :------------ | :------------ | :------- | | Net Revenues | 55.8 million | 48.1 million | 15.9% | | Gross Profit | 25.4 million | 21.9 million | 15.9% | | Gross Margin | 45.5% | 45.5% | 0.0% | | Net Loss Attributable to ACG | (13.3) million | (17.9) million | -25.7% | | Cash and Cash Equivalents (End of Period) | 39.4 million | 36.5 million (Q4 2024) | 8.0% (vs Q4 2024) | Operational Highlights Despite a decrease in student enrollment, total instructional hours grew by 5.8% year-over-year, primarily driven by a significant increase in project-based program hours, which now represent a larger share of total hours Q1 2025 Instructional Hours Comparison | Program Type | Q1 2025 (Instructional Hours) | Q1 2024 (Instructional Hours) | Change (%) | | :------------------- | :-------------------- | :-------------------- | :------- | | Time-based Programs | 9,250 | 10,825 | (14.5)% | | Project-based Programs | 26,222 | 22,702 | 15.5% | | Total | 35,472 | 33,527 | 5.8% | | Student Enrollment | 1,104 | 1,370 | (19.4)% | - In Q1 2025, 56.7% of students participated in ACG's combined training programs (time-based and project-based), while 43.3% enrolled in other programs including overseas study consulting and research-based learning services[8] Management Commentary and Business Outlook CEO's Remarks CEO Kevin Ma expressed satisfaction with Q1 2025 net revenue and gross profit growth, driven by increased contributions from combined training and research-based learning services, as the company continues to invest in advanced educational offerings and achieve strong admission results - The CEO expressed satisfaction with the approximately 16% growth in Q1 2025 net revenues and gross profit, primarily contributed by combined training and research-based learning services[7] - In Q1 2025, the company launched new research-based programs, including a Hainan-themed camp, Alibaba AI training camp, US-Japan study tours, and Milan Fashion Week projects, alongside creative art therapy training courses[10] - ACG students consistently receive admission offers and scholarships from Ivy League and other prestigious universities, reflecting the company's commitment to providing advanced educational services[10] FY 2025 Guidance ACG anticipates total net revenues for fiscal year 2025 to range between RMB 276 million and RMB 281 million, representing a year-over-year growth of approximately 3% to 5% FY 2025 Net Revenue Guidance | Metric | Projected Amount (RMB) | Year-over-Year Growth | | :----------- | :--------------------- | :-------------------- | | Total Net Revenues | 276 million - 281 million | 3% - 5% | President's Remarks & Strategic Initiatives President Jun Zhang expects continued growth in core combined training and portfolio preparation services in 2025, with plans for more research-based learning programs, expanded international collaborations, and a strategic focus on organic expansion, cost control, operational efficiency, and attracting diverse student demographics - Core combined training services and other services assisting students in creating compelling application portfolios are expected to continue expanding in 2025[12] - The company has expanded international collaborations beyond US and UK colleges and universities, observing growing student interest in creative arts programs in Europe, Japan, and Singapore[12] - Strategic priorities include driving organic expansion, controlling expenses, enhancing overall operational efficiency, and attracting broader interest in art learning, workshops, and themed trips among older and younger generations through new programs[12] Conference Call Information ACG will host a conference call on Friday, May 16, 2025, at 9:00 AM ET (9:00 PM Beijing Time) to discuss Q1 2025 results, with a simultaneous audio webcast and slides available - The conference call is scheduled for Friday, May 16, 2025, at 9:00 AM ET, to discuss Q1 2025 results[13] - A simultaneous audio webcast and slides will be available via the company's investor relations website[14] Detailed Q1 2025 Financial Review (GAAP) Net Revenues and Gross Profit Q1 2025 net revenues increased by 15.9% year-over-year to RMB 55.8 million, driven by higher contributions from combined training and research-based learning services, with gross profit also growing by 15.9% and gross margin remaining at 45.5% Net Revenues and Gross Profit Comparison | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (%) | | :----------- | :------------ | :------------ | :------- | | Net Revenues | 55.8 million | 48.1 million | 15.9% | | Gross Profit | 25.4 million | 21.9 million | 15.9% | | Gross Margin | 45.5% | 45.5% | 0.0% | - The increase in net revenues was primarily attributable to higher revenues from combined training programs and research-based learning services[15] Revenue by Program Type Combined training program revenues increased by 11.5% year-over-year, accounting for 70.8% of total net revenues, while overseas study consulting, research-based learning, and other education services revenues grew by 28.4%, representing 29.2% of the total Net Revenues by Program Type | Program Type | Q1 2025 (RMB) | Percentage of Total | Year-over-Year Change (%) | | :------------------------------------------------- | :------------ | :------------------ | :------------------------ | | Combined Training Programs | 39.5 million | 70.8% | 11.5% | | Overseas Study Consulting, Research-based Learning, and Other Education Services | 16.3 million | 29.2% | 28.4% | Operating Expenses Total operating expenses in Q1 2025 slightly decreased by 3.2% to RMB 42.2 million, with its percentage of net revenues falling from 90.6% to 75.6%, primarily due to reduced selling and R&D expenses and recovery of previously impaired loans, partially offset by increased G&A expenses for new project development Total Operating Expenses Comparison | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (%) | | :--------------------------- | :------------ | :------------ | :------- | | Total Operating Expenses | 42.2 million | 43.6 million | (3.2)% | | Percentage of Net Revenues | 75.6% | 90.6% | -15.0% | | Provision for Loans and Other Receivables | (3.78) million | — | N/A | - The decrease in operating expenses was primarily due to reduced selling and R&D expenses, along with the recovery of previously impaired loans and other receivables, partially offset by increased general and administrative expenses[16] Selling Expenses Selling expenses decreased by 5.8% year-over-year to RMB 21.3 million Selling Expenses Comparison | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (%) | | :------------- | :------------ | :------------ | :------- | | Selling Expenses | 21.3 million | 22.6 million | (5.8)% | Research and Development Expenses Research and development expenses decreased by 27.4% year-over-year to RMB 0.7 million, primarily because ACG's system development was completed in Q2 2024 Research and Development Expenses Comparison | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (%) | | :----------------------- | :------------ | :------------ | :------- | | Research and Development Expenses | 0.7 million | 1.0 million | (27.4)% | - The decrease in R&D expenses was primarily due to the completion of ACG's system development in Q2 2024[23] General and Administrative Expenses General and administrative expenses increased by 19.8% year-over-year to RMB 24.0 million, mainly due to increased investment in new project development and higher professional service fees General and Administrative Expenses Comparison | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (%) | | :-------------------------- | :------------ | :------------ | :------- | | General and Administrative Expenses | 24.0 million | 20.0 million | 19.8% | - The increase in general and administrative expenses was primarily due to increased investment in new project development and higher professional service fees[23] Loss from Operations and Net Loss Both operating loss and net loss attributable to ACG narrowed year-over-year in Q1 2025, primarily due to increased net revenues and operational leverage Operating Loss and Net Loss Comparison | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (%) | | :--------------------------- | :------------ | :------------ | :------- | | Loss from Operations | (16.8) million | (21.7) million | -22.6% | | Net Loss Attributable to ACG | (13.3) million | (17.9) million | -25.7% | - The narrowing of losses was primarily due to increased net revenues and operational leverage[17] Basic and Diluted Losses Per Share Basic and diluted loss per share attributable to ACG for Q1 2025 narrowed to RMB 0.21 (or USD 0.03) from RMB 0.29 in the prior year, with basic and diluted loss per ADS at RMB 0.42 (or USD 0.06) Basic and Diluted Losses Per Share Comparison | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (RMB) | | :----------------------------------- | :------------ | :------------ | :----------- | | Basic and Diluted Loss Per Share (Ordinary Shares) | (0.21) | (0.29) | 0.08 | | Basic and Diluted Loss Per Share (ADS) | (0.42) | (0.58) | 0.16 | - The weighted average number of ADSs used in calculating basic and diluted loss per ADS was 31.6 million, with each ADS representing two ordinary shares[24] Non-GAAP Financial Measures Adjusted Net Loss and EPS Excluding share-based compensation and foreign exchange gains/losses, adjusted net loss attributable to ACG for Q1 2025 narrowed to RMB 13.3 million (or USD 1.8 million) from RMB 16.9 million in the prior year, with adjusted basic and diluted loss per ordinary share at RMB 0.21 and per ADS at RMB 0.42 Adjusted Net Loss and EPS Comparison | Metric | Q1 2025 (RMB) | Q1 2024 (RMB) | Change (RMB) | | :----------------------------------- | :------------ | :------------ | :----------- | | GAAP Net Loss Attributable to ACG | (13,344,642) | (17,948,776) | 4,604,134 | | Share-based Compensation Expenses | 81,532 | 1,072,616 | (991,084) | | Net Foreign Exchange Gains (Losses) | 2,726 | 564 | 2,162 | | Non-GAAP Adjusted Net Loss Attributable to ACG | (13,260,384) | (16,875,596) | 3,615,212 | | Non-GAAP Adjusted Basic and Diluted Loss Per Share (Ordinary Shares) | (0.21) | (0.27) | 0.06 | Explanation of Non-GAAP Measures ACG uses non-GAAP financial measures, excluding share-based compensation and foreign exchange gains/losses, to supplement GAAP information, providing more meaningful performance insights for management and investors to evaluate the company's performance, despite acknowledging these are important recurring expenses - Non-GAAP financial measures aim to provide supplemental information regarding the company's performance by excluding share-based compensation expenses and foreign exchange gains or losses[33][34] - Both management and investors benefit from these non-GAAP measures to assess performance, plan and forecast future periods, and facilitate internal comparisons of historical performance[35] - A limitation of using non-GAAP measures is that share-based compensation expenses and foreign exchange gains or losses are important recurring expenses in the company's business[35] Balance Sheet Highlights As of March 31, 2025, ACG's cash and cash equivalents increased to RMB 39.4 million from year-end 2024, though working capital deficit and total shareholders' equity both decreased Balance Sheet Key Metrics Comparison | Metric | March 31, 2025 (RMB) | December 31, 2024 (RMB) | Change (RMB) | | :--------------------------- | :--------------------- | :---------------------- | :----------- | | Cash and Cash Equivalents | 39.4 million | 36.5 million | 2.9 million | | Working Capital Deficit | (298.5) million | (287.9) million | (10.6) million | | Total Shareholders' Equity | 66.4 million | 79.6 million | (13.2) million | Company Information About ATA Creativity Global ATA Creativity Global is an international education services company dedicated to fostering and enhancing student creativity through its network of training centers, offering combined training, research-based learning, overseas study consulting, and other educational services - ATA Creativity Global is an international education services company focused on providing quality learning experiences that cultivate and enhance students' creativity[26] - The company offers combined training, research-based learning services, overseas study consulting, and other educational services through its network of training centers[26] Cautionary Note Regarding Forward-looking Statements This announcement contains forward-looking statements regarding ACG's future growth, operating results, M&A plans, growth strategies, market demand, and FY 2025 guidance, which are based on current expectations and assumptions but are subject to various known and unknown risks and uncertainties that could cause actual results to differ materially - This announcement contains forward-looking statements concerning ACG's future growth, operating results, M&A plans, growth strategies, market demand, and FY 2025 guidance[27][28] - Forward-looking statements are based on current expectations, assumptions, estimates, and projections, but are subject to various known and unknown risks and uncertainties that could cause actual results to differ materially from expectations[29][31] - Risk factors include the ability to develop content meeting student needs, provide effective services, control sales and marketing expenses, market acceptance, maintain market share, integrate acquisitions, the Chinese economic and regulatory environment, and US-China political tensions[29] Currency Convenience Translation The company's financial information is presented in RMB, and for reader convenience, RMB amounts as of March 31, 2025, have been translated into USD at an exchange rate of 7.2567 to 1.00 USD, which should not be construed as a representation that RMB amounts could be converted at this or any other rate - The company's financial information is presented in RMB, with USD conversions provided solely for reader convenience at an exchange rate of RMB 7.2567 to USD 1.00 as of March 31, 2025[32] - This translation should not be construed as a representation that RMB amounts could be converted at this or any other rate[32] Investor Relations Contact Investor relations contact information for ATA Creativity Global and The Equity Group Inc., including phone and email, is provided - Investors can contact Ruobai Sima, CFO of ATA Creativity Global, or Lena Cati and Alice Zhang of The Equity Group Inc. for further information[37] Unaudited Condensed Consolidated Financial Statements Balance Sheets As of March 31, 2025, the company reported total assets of RMB 457.3 million, total liabilities of RMB 390.9 million, and shareholders' equity of RMB 66.4 million, with cash and cash equivalents slightly increasing but total shareholders' equity decreasing compared to December 31, 2024 Condensed Consolidated Balance Sheets (Summary) | Metric | March 31, 2025 (RMB) | December 31, 2024 (RMB) | | :----------------------------------- | :-------------------- | :---------------------- | | Cash and Cash Equivalents | 39,410,928 | 36,523,995 | | Total Current Assets | 73,240,281 | 66,639,674 | | Total Assets | 457,343,460 | 456,927,265 | | Total Current Liabilities | 371,709,247 | 354,495,409 | | Total Liabilities | 390,948,947 | 377,281,073 | | Shareholders' Equity Attributable to ACG | 66,458,797 | 79,710,448 | Statements of Comprehensive Income (Loss) In Q1 2025, the company achieved net revenues of RMB 55.8 million and gross profit of RMB 25.4 million, with operating loss at RMB 16.8 million and net loss attributable to ACG at RMB 13.3 million, both showing improvement from the prior year Condensed Consolidated Statements of Comprehensive Income (Loss) (Summary) | Metric | March 31, 2025 (RMB) | March 31, 2024 (RMB) | | :----------------------------------- | :-------------------- | :-------------------- | | Net Revenues | 55,790,906 | 48,125,819 | | Cost of Revenues | 30,402,595 | 26,215,352 | | Gross Profit | 25,388,311 | 21,910,467 | | Operating Expenses | 42,196,714 | 43,599,108 | | Loss from Operations | (16,789,598) | (21,665,553) | | Net Loss | (13,344,670) | (17,948,804) | | Net Loss Attributable to ACG | (13,344,642) | (17,948,776) | | Basic and Diluted Loss Per Share (Ordinary Shares) | (0.21) | (0.29) | | Basic and Diluted Loss Per Share (ADS) | (0.42) | (0.58) | Reconciliations of Non-GAAP Measures Reconciliation tables are provided for GAAP net loss to non-GAAP adjusted net loss and GAAP loss per share to non-GAAP adjusted loss per share, with key adjustments for share-based compensation expenses and foreign exchange gains or losses Reconciliations of Non-GAAP Measures | Metric | March 31, 2025 (RMB) | March 31, 2024 (RMB) | | :----------------------------------- | :-------------------- | :-------------------- | | GAAP Net Loss Attributable to ACG | (13,344,642) | (17,948,776) | | Share-based Compensation Expenses | 81,532 | 1,072,616 | | Net Foreign Exchange Gains (Losses) | 2,726 | 564 | | Non-GAAP Adjusted Net Loss Attributable to ACG | (13,260,384) | (16,875,596) | | GAAP Basic and Diluted Loss Per Share (Ordinary Shares) | (0.21) | (0.29) | | Non-GAAP Adjusted Basic and Diluted Loss Per Share (Ordinary Shares) | (0.21) | (0.27) |