Greetings. Welcome to ATA Creativity Global's First 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. Please note this conference is being recorded. I will now turn the conference over to Alice Zhang with 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 first quarter ended March 31, 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, 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, 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 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 first quarter ended March 31, 2024 are converted from RMB using exchange rate of RMB7.2203 to US$1, the noon buying rate as of March 31, 2024. All historical conversions are accurate as of the time reported, unless otherwise noted. The company reports its financial results under the U.S. GAAP in RMB, 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 e-mail to the company. If you wish to ask questions, you can send your questions to the e-mail address [email protected], 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 first quarter of 2024. As President, Mr. Jun Zhang, is unable to be here today, the company's Chairman and CEO, Mr. Kevin Ma, and Mr. Sima will follow with an update on the company's guidance, 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 your time. We are pleased to start 2024 on strong notes, achieving a 13.7% increase in total net revenues in the first quarter of 2024, driven by significant growth in portfolio training services as a result of increased student enrollment and credit hours delivered. We continue to reveal portfolio training as our primary growth driver and are excited to see continued growth of student interest in our primary creative arts offerings. To better support our growing student population, we recruited additional teaching staff. We have also expanded our sales team to meet growth demands. We'll continue to enhance our research-based learning and overseas study counseling services to provide students with a comprehensive portfolio of offerings that provides a strong foundation in creative arts and extensive choice of areas in which to specialize with ample opportunities to experience history and culture and showcase their learning in the real world. Total student enrollment for the first quarter 2024 was 1,370, up nearly 25% from about 1,097 in the prior year period. Enrollment in our core portfolio training programs increased more than 33% with 863 students enrolled during the first quarter 2024, compared to 648 students in the prior year period. We also delivered 33,527 portfolio training credit hours, an increase of 21.3% year-over-year. With that, let's move to financials for the first quarter 2024. Total net revenues for the first quarter 2024 were RMB48.1 million, up 13.7% from RMB42.3 million in the first quarter of 2023. This was primarily driven by increased contributions from the portfolio training services, which represented 73.7% of total net revenues during the period. Gross margin improved to 45.5% during the first quarter 2024, from 44.3% in the prior year period. We realized increased efficiencies in our operations despite increased costs of services related to the hiring of additional teaching staff to support enrollment growth. The net loss attributed to ACG was RMB17.9 million during the first quarter 2024, compared to RMB17.8 million in the prior year period, which was primarily a result of increased sales expenses related to the hiring of additional sales personnel to support the continued growth of our portfolio training services business. Moving to the balance sheet, we continue to be in a solid financial position with US$8 million in cash and cash equivalents. The working capital deficit was US$36.9 million and total shareholders' equity was US$13.3 million at March 31, 2024, compared to a working capital deficit of US$34.4 million and shareholders' equity of US$15.9 million respectively at December 31, 2023. With that, I would like to turn it over to Kevin, who will expand upon our outlook and growth strategy. Kevin?

Thank you, Sima. We opened 2024 with a solid first quarter, achieving top-line growth supported by our expanding core portfolio training service business while we made investments in our teaching staff and sales team to continue supporting operational growth. Having completed a full year of in-person class deliveries without interruption, we received valuable feedback from 2023 students, which will help us to improve existing and design new programs with a focus on our mission of enabling positive student outcomes. Given a strong start to the year, we are reiterating our revenue expectations for the year ending December 31, 2024, of between RMB233 million to RMB255 million, which represents a 5% to 15% increase from the fiscal year 2023. We continue to grow our existing business and explore potential acquisitions for other business opportunities. And as any material developments arise, we will be sure to update the market and reiterate guidance as appropriate. Our enrollment efforts and the commitment to supporting students academically and emotionally lie at the heart of our business development. Students' interest in ACG's portfolio training service was not only reflected in increased student enrollments and service delivery during the first quarter of 2024 but also in our long-term sales results. As China continues to encourage students to take on different study camps after junior high school graduation, the demand for a non-traditional pathway to pursuing higher education opportunities has improved the visibility of China's arts education institutions. We believe the achievements of our students and our reputation for high-quality offerings and support of the traditional arts were in this favorable market environment. During the first quarter of 2024, we hosted the Open Hack Shanghai Fashion Week program in March. This program was well-received by the participating students, and we were pleased to see their experience and work performed during this program incorporated into the student portfolios for overseas art institution applications. Our other research-based learning offerings, including the master class we introduced during that period, enrolled more than 100 students in multiple projects across a variety of art topics, which we believe is a testament to ACG's unparalleled expertise in understanding and addressing students’ needs in specific art subcategories. As a rich education service provider, we believe that the best outcomes are driven by hard work and determination. To that end, I would like to congratulate our students whose efforts have been rewarded with letters of admission from prestigious schools such as the Royal College of Arts, University of Arts London, and Rhode Island School of Design, as well as Harvard University, University of Pennsylvania, and Cornell University among others. We look forward to continuing to support our students through graduation and to witness what they accomplish beyond ACG. I now like to hand the floor back to Mr. Sima to provide an update on our current growth initiatives. Sima, please go ahead.

Thank you, Kevin. The education business has always been to empower creative individuals to reach their full potential in their educational journey. We are honored by the continued trust from our students, their families, and our institutional partners who recognize our role and our teachers’ dedication in supporting students in their art. In addition to our portfolio training and overseas study counseling services, we are pleased to announce a new project line business. The United Nations Art Bootcamp is a two-week bootcamp focused on sustainable development goals created by the United Nations to drive global development issues concerning social, economic, and environmental sustainability. Students are able to take classes taught by UNESCO officers and our professors from four Italian institutions. They also completed projects that can become part of their overseas school application portfolio. Upon completion, participating students will receive a certification of completion issued by UNESCO. Students who performed exceptionally well will receive an internship certification from UNESCO as well as a reference letter. Selected students will also be invited to attend the United Nations University annual conference this summer. We developed boot camps for students from all arts backgrounds with the hope that students will benefit in several ways when it comes to their overseas study applications, including portfolio application enhancement, reference letters, and internship experience. Currently, we are hosting master classes in specialties such as interior design, photography, and visual design, and students are excited to have the opportunity to expand their discipline with professors from universities including the University of Arts London and Rhode Island School of Design. We believe that various types of research-based learning programs reflect ACG's capability to expand students’ horizons, no matter what discipline they have chosen to focus on or where they are in their art education journey. It is also a reflection of our ability to strengthen and expand our institutional partnerships. In the remainder of 2024, we remain focused on growing our core portfolio training service business and ensuring that we have the operational infrastructure to support this growth. We believe ACG’s competitive advantages are built upon our track record of empowering students to reach their full potential, which is only possible because of our dedicated instructors, support teams, and our network of institutional partners. We continue to explore potential merger and acquisition opportunities and are excited about what we are seeing in the industry. We will be sure to update the market with any developments. With that, I turn it back to Kevin.

Thanks. Yes, ACG has strived to become a leading player in the China operative education market, and we take pride in guiding our students along their educational journeys, paving opportunities and experiences in the arts. We remain optimistic about ACG's prospects for 2024 and look forward to reporting progress on our strategic growth initiatives in the coming months. With that, operator, let's open it up for questions.

Thank you. Our first question comes from Louis Fan with The Benchmark Company. You may proceed.

Hi. Thank you for taking my call. Congratulations on a solid quarter. I just have a couple of questions. First of all, you mentioned Q1 revenue growth was primarily due to portfolio training services. Could you tell us how we should think about enrollment in portfolio training and your thoughts on its trajectory? I mean, do you feel it can continue to grow at its current rate? I believe you mentioned about 30% in Q1.

Hi, Louis. Thanks for your question. And yes, we had a strong fourth quarter with revenues from the business increasing nearly 50% due to a 24.9% increase in student enrollment and a 21.3% increase in credit hours delivered. The performance of our portfolio training services business can be measured through different metrics, including student enrollment, the number of credit hours delivered, and the unit price per credit hour. Regarding the unit price, we have continued to encourage students to opt for project-based programs over time, which are designed to be flexible, customizable, and adjustable according to students' needs. For the unit price, we have realized growth, and student enrollment increased as a result of effective work from our sales team. With a digital hiring approach, we have been able to successfully deliver more credit hours, thanks to the hiring of more full-time teaching staff, which will also support future growth in this line of business. We continue to achieve economies of scale, and our research business has grown because students have shown continued interest in our portfolio training services. We believe that ongoing investment in teaching resources will enable us to meet student demand and drive sustainable growth. Additionally, our sales team is working closely with teaching staff, who have been increasingly engaging in program design and sales efforts. Based on our internal data, we believe there is room to grow our portfolio training services business, which remains our core business and will be the key growth driver for ACG.

Thank you.

Okay, thank you. That's very good information. Now you reiterated your revenue guidance for the full year of 2024. So given that we are nearly halfway through the year, is there any additional color you could provide on cadence, whether revenue will be relatively consistent from Q2 to Q4 or whether there will be some lumpiness? Where do you see this 5% to 15% growth coming from? Thank you.

Actually, I think for the next two or three quarters, our core business and portfolio training will show sustainable growth, and in the following period, we expect continued improvement. Besides this, as our portfolio expands, I believe that over the next two to three quarters, our main revenue and sales gains will still come from this sector. Additionally, we are working to generate more direct income, including project-based learning and other overseas study initiatives. These two areas will contribute additional revenue in the following periods. Yes.

All right. Thank you very much. Appreciate it.

There are no further questions at this time. I would like to turn the conference back over to Kevin Ma.

Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach us directly through our Investor Relations team at 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.