Greetings. Welcome to ATA Creativity Global Second Quarter 2024 Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Alice Zhang 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 second quarter and six months ended June 30, 2024 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 this conference call and any accompanying information discussed herein 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, intend, look forward to, outlook, guidance, plans, should, will and similar terms that 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; ACG's 2024 guidance; market demand for and market acceptance and competitiveness of ACG's portfolio training programs and other education services.

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 the risks associated with investing in ACG is included in its 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 marketing 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, 2024, are converted from RMBusing an exchange rate of RMB7.2672 to $1. The new buying rate as of June 30, 2024. All historical conversions are accurate as of the time reported, unless otherwise noted.

The company reports the financial results on U.S. GAAP in RMB, and all percentages calculated in the presentation are based on RMBunless 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're more than happy to take investor questions during today's Q&A session or via e-mail to the company. If you wish to ask questions, you can send your questions to the e-mail address azhang@equityny.com. And please specify whether you would like to have your name read during the Q&A session. On today's call, the company's CFO, Mr.

Ruobai Sima, will provide a brief overview of operating and financial highlights for the second quarter of 2024. 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, Mr. Sima..

Thank you, Alice, and welcome, everyone, and good evening to those in America. We appreciate everyone's time. We were pleased to see student demand for portfolio training services continue to depend in second quarter 2024.

This is our core business and primary driver of growth contributing RMB40.2 million in revenue during the period, 41.9% year-over-year. As a result, we achieved significant top line growth, a 42.8% increase in total net revenue to RMB41.8 million.

During second quarter 2024, building the enrollment was 5,084, an increase of 15.8% from the prior year period. Of those students, 612 were enrolled in ACG portfolio training programs compared to 540 in the second quarter of last year. 42,841 portfolio training credit hours were delivered during the period, up 49.3% year-over-year.

We are excited to see continued expansion across all of our business including research-based learning and overseas study counseling services. We strongly believe in the value our comprehensive offerings provide to students and impact that.

The enrollment growth we have seen thus far in the year, we also saw strong performance in the second half of 2024. Our investment is in expanding the teaching and sales staff have contributed to those results and reserve as a foundation for full term growth. With that, let's move to financials for second quarter 2024.

Total net revenues for second quarter 2024 was RMB41.8 million, an increase of 42.8% from RMB36.2 million in the second quarter of 2023. Gross margin improved to 49.6% during the second quarter 2024 from 39.5% in the prior year period, primarily as a result of significantly increased revenue.

Net loss attributable to ACG was RMB15.8 million during the second quarter 2024 compared to RMB17.2 million in the prior year period.

Bottom line results were impacted by a 30.2% increase in operating expenses related to increased G&A expenses for higher professional fees and exposed for business retention and increased sales expense due to the performance bonus in line with increased sales and the area of additional sales personnel.

During the first half of 2024, total net revenues increased 27.2% to RMB99.9 million compared to RMB78.6 million in the prior year period. Gross margin improved to 47.7% from 42.1% in the prior year period. Net loss attributable to ACG was RMB34.7 million compared to RMB35 million. Moving to the balance sheet.

We reported $5.5 million in cash and cash equivalents at the end of second quarter 2024. Working capital deficit was $40.7 million and total shareholders active was $11 million at June 30, 2024, compared to working capital deficit of $34.4 million and shareholders' equity of $15.9 million, respectively, at December 31, 2023.

With that, I'd like to turn it over to Kevin, who will expand upon our outlook and growth strategy.

Kevin?.

Thank you, Sima. We are pleased to see ACG's portfolio of offerings continued to resonate with students translating into meaningful financial results. As our portfolio training service is grows, we believe the demand for overseas study counseling and research-based learning service will also expand.

During the first half of 2024, we made a mindful investments to add resources to help drive student enrollment and support the growing students' population, which is imperative to enable positive student outcomes and our ability to achieve long-term success. We reported RMB99.9 million in net revenues in the first half 2024.

As the second half of the year has historically been stronger than they are than the first, attributing we anticipate will continue in 2024. We are reiterating our revenue expectations for the year ending -- I'm sorry. We are reiterating our revenue expectations from the year ending December 31, 2024.

We expect the total revenue will be in the range of RMB230 million to RMB235 million, which is at 5% to 50% increase for the fiscal year 2023. ACG demands focus on growing our student base and expanding our current business while exploring potential acquisition opportunities.

And as any material development arise, we'll be sure to update the market and the average guidance as appreciate. ACG is a product of its ability to identify and fulfill students' needs in having social and creative environment.

This is the cornerstone of our product design and execution, especially as our students have increasing time from devices, academic and creative background.

To that end, we have not only continued to engage teaching staff in the sales and the cost design process, but we also hosted the ACG Arts Education Exhibition in April across five major cities in China including Beijing, Shanghai, Shenzhen.

As extension, we invite the former and current advising committee office from prestigious overseas universities such as MIT and Stanford University to join us in sharing their insights on overseas studies applications and the career planning. The exhibition was met with extraordinary interest across all of our service offering.

Through a series of marketing efforts, we continue to increase our market exposure and engage with students who are interested in potentially exploring creative arts education in the future. During second quarter 2024, we successfully hosted the second session of the United Nations Sustainable Development Goals Arts Boot Camp to 70 students.

Participating students ranged from high school to college age, and they came together to create a group project on sustainability topics with a variety of application such as climate changes, regenerative energy and environmental protection.

Our mascot have also get the small groups of students in their respective areas of interest, allowing them to walk away with individual artworks in visual communication, photographs as well as interior design, and we hope will strengthen their portfolio for all their school applications.

We're very excited for many of our graduate ACG students, who will embark on the next set of their creative arts education at overseas institutions this fall. For all 2024, as mentioned, we have seen significant growth in the number of offers received by ACG students.

Those of have come from schools all over the world, including topping institutions such as Harvard, Oxford and University of Pennsylvania as well as top arts institutions such as School of Visual Arts, the Pratt Institute and the Parsons School of Design.

We believe this positive trend in received offers is a positive indicator of increased student demand for overseas student opportunities, which bodes well for our overseas study counseling service business. We believe those trends will continue into the coming application period.

And now to hand the floor 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 an English translation. Jun, please go ahead..

Thank you, Kevin. Thank you, Kevin. As we have invested in the expansion of ACG's business, the quality of our products and services have stayed top of line. At the end of the day, our well-rounded offerings and the ability to support students in this journey are what really make all the difference.

We have been pleased to host a variety of research-based learning experiences this summer, covering a wide range of our topics and immersive hands-on culture experiences.

In July, we hosted a second session of the United Nations Sustainable Development Goals Arts Boot Camp inspired by the success of our May session, which is more -- which is once again, highly rated by participating students.

In addition to online Master Classes taught by prestigious art institution lecturers, we also hosted two intangible cultural heritage-themed camps in Dunhuang, Gansu Province and West Sichuan Province, which are led by instructors from Rhode Island School of Design and Yale University to explore the beauty of China's traditional arts.

In Dunhuang, students visited Mogao Caves and Yulin Caves to study Dunhuang-style colored sculpture and mineral camping. In West Sichuan, students were exposed to Asian music and cultural traditions and experienced Tibetan culture.

We believe these types of experiences provide students with a unique learning opportunity and perspective, allowing them to go beyond the world they know and are familiar with.

The ability to adapt and be open-minded is particularly valuable for those applying to study overseas and must create a solid application portfolio that demonstrates an understanding of and love for art, for different cultures and tradition.

We're also bringing students overseas this summer to Japan, the United States and to the United Kingdom through summer schools and campus visits.

Understanding that education is the cornerstone of a student's lifetime success both academically and professionally, ACG has prided itself on our ability to establish and maintain highly collaborative relationships with world-renowned institutions.

And we look forward to growing our partnership network to assess more world-class educational resources for our students. We expect to enter their overseas study application season soon and are prepared to serve as a trusted guidance supportive to our students during this stressful but exciting times.

We remain fully committed to our mission of enabling positive student outcomes and look forward to a busy and productive remainder of the summer as we head into the fall. In the balance of 2024, we're focused on growing our current business, which includes portfolio training services, overseas study counseling and research-based learning services.

We remain very confident in ACG's superior competency in the market while continuing to invest in the operational infrastructure to ensure that we're able to provide students with the exceptional education and support system they have come to expect. With that, I'll turn it back over to Kevin..

Thanks, Jun. We are pleased our progress in the first half of 2024 and are optimistic that the positive momentum we have experienced thus far will enable us to finish the year on a strong note.

As a leading player in China creative art education market, we are proud to see that we have always strived to find the ways to improve our sales and help our students to achieve their full potential. We believe we are on the track to carry out our growth initiatives and drive success for our students and for ACG's shareholders.

With that, operator, let's open it up for questions..

Thank you. [Operator Instructions] There are no questions at this time. I would like to hand it back over for closing comments.

Alice, do you have any closing comments?.

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Kevin?.

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 from 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..

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation..