ATA Creativity Global (AACG) Q4 2025 Earnings Call Transcript

Greetings. Welcome to ATA Creativity Global fourth quarter and year-end 2025 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Allison for the equity group.

Please proceed. thank you operator good evening to all of you joining us from the united states and good morning to all of you joining us from china please be advised that the discussions on today's call may include forward-looking statements such forward-looking statements involve certain risk 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 these projections and assumptions the company assumes no obligation to update for 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 acg's website simultaneous audio webcast is also accessible via the ir section of acg's website including the replay, which will be available for the next 90 days. ACG's chairman and CEO, Mr. Kevin Ma, will start this call by highlighting the company's fourth quarter 2025 key operational achievements and financial highlights. Therefore, Mr. Roba Sin Ma will provide an overview of financial and operating results for fourth quarter 2025 and four-year 2025. President Mr. Jun Zhang will conclude the prepared remarks with an update on the company's long-term growth strategy before 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 ACG's Chairman and CEO, Mr. Kevin Ma. Please go ahead, Mr. Kevin Ma.

Thank you, Alice. And welcome, everyone. Good evening to the American. We appreciate everyone's time. As Alice mentioned, please refer to our earnings stick available on the IR site of our website. As we go through our prepared remarks, as we have discussed in previous quarters, 2025 overall students demanded normalize the following suit of student element in the previous year, while we reported lower total revenues during fourth quarter 2025 as compared to the same period of last year. Revenues from research-based learning and other educational services increased year-over-year, primarily as we hosted more projects and provided more service to institutional partners. In fourth quarter 2025, due to cost-saving initiatives, we have been implementing and the resulting streamlined operations compared to fourth quarter 2024, we reported a 15.7% lower operating expenses, including a one-time goodwill impairment charge in fourth quarter 2025. For fiscal year 2025, despite overall normalized and marked demand, total revenues were stable, supported by our core portfolio training services, and increased contribution from research-based learning. Over this study, counseling, and other educational services, full year 2025 was also marked by lower the operating expenses as compared to full year 2024 during fourth quarter 2025 our main revenue contributor remained a portfolio training service according for 68.8 percent of total net revenue project-based programs have become the domain choice for our students accounting for 74.9% of total credit hours delivered, with 66.8% in fourth quarter 2024. Revenues from research-based learning and overseas studies concerning increased by 4.6% during fourth quarter 2025 as a result of more service delivery for in-school art classes in partnership schools. During fourth quarter 2025, our highly diversified research-based learning services continued to get students' interest, especially during the winter vacation when students have the time to participate in more intense projects, either in person or online. As usual, in addition to our Open Hack Shanghai Fashion Week project, we hosted 10 online masterclasses covering a wide array of art topics given by lecturers from top universities including Carnegie Mellon University, Harvard University, as well as the University of Art London Royal College of Art. We also made a continuous investment to ensure ACG students have access to world-class educational infrastructure and academic resources when preparing for object study journalists. In October, we hosted the 2025 ACG Experts Tour in seven of cities bring academia and industry experts to Shanghai, Wuhan, Chengdu, Chongqing, and Shuzhou to side face-to-face with over 1,000 students. Experts gave lectures on industrial and academy trends of interdisciplinary design and main leader with social students one-on-one, providing feedback on their artwork and application portfolios, and sharing their input in career planning. During Quad 4, 2025, we established ACG's first music preparatory center in Tendu, working in exclusive partnership with Leeds Conservatory, which is the first and only music-focused preparatory center in collaboration with the overseas institutes to provide a one-year intensive study program before students head to the UK to finish their bachelor's degree. We also implemented a series of service enhancements to our existing ACG Japan Center, which now hosts more master-class projects and provides improved class offerings and courses, customizations, working in collaboration with more Japanese arts schools. Additionally, we began providing services to more institutional partners, contributing to increased revenues from other educational services. With that, I hand over the call to Sima for a detailed overview of our financial and operating results for fourth quarter and the full year 2025.

Thank you, Kevin. I will start with the fourth quarter 2025 key financial matrix. Total net revenue for fourth quarter 2025 was RMB 89.1 million, decreased 11.7% as compared to the fourth quarter 2024. The decrease was primarily due to decreased revenue contributions from portfolio training programs and overseas daily counseling services, partially offset by increased revenue contributions from research-based learning services and other educational services. Gross profit for fourth quarter 2025 was RMB $60.2 million, compared to RMB $63.7 million in fourth quarter 2024, affected by lower revenues and higher cost of revenues related to research-based learning services, outsourcing costs, and part-time teacher costs. Growth margin was 56.4% during the fourth quarter of 2025, compared to 63.1% in the prior year period. Total operating expenses was R&B $73.3 million in fourth quarter of 2025, compared to R&B $46.8 million in fourth quarter of 2024. Increased primarily as a result of one-time goodwill impairment charge for RMB 33.9 million or U.S. dollar 4.8 million recorded in Q4 2025, which was not recorded in Q4 2024, and partially offset by an RMB 7.4 million decrease in sales expenses related to lower headcounts in sales personnel and decreased sales incentives during the period. Excluding the one-time goodwill impairment charge, total operating expenses decreased by 15.7% from fourth quarter 2024 and as a percentage of net revenues decreased to 44.2% during fourth quarter 2025 compared to 46.3% in the prior year period. Other results, loss from operations in fourth quarter 2025 was RMB 23 million, compared to income from operations of RMB 17 million in fourth quarter 2024. Net loss attributed to ACG during the fourth quarter 2025 was RMB 26.3 million, compared to the net income attributed to ACG of RMB 13.3 million in the prior period. Due to full year 2025, total net revenue was R&B 268.1 million, flat from prior year period. Revenue was impacted by lower contribution from portfolio training services and offset by increased contribution from research-based learning and hourly study counseling and other educational services. For full year 2025 was R&B $130.3 million, a decrease of 7.8% from R&B $141.3 million in full year 2024. As a result of increased outsourcing costs during the period, growth margin was 48.6% compared to 52.7% in full year 2024. Total operating expenses for RMB $194.6 million in full year 2025. An increase of 5.5% from RMB $184.5 million in full year 2024. Increase in operating expenses during the year was primarily due to a one-time goodwill impairment charge of RMB $33.9 million recorded use Q4 2025. will partially offset by lower operating expenses and an R&B 3.8 million collection of privacy impaired loans and other receivables recorded in Q1 2025, excluding the one-time goodwill impairment chart and the collection of privacy impaired loans and other receivables. total operating expense decreased by 10.8% from full year 2024, and as a percentage of net revenues decreased to 61.3% from 68.8% in the prior year period. We recorded an R&B 17.3 million decrease in sales expenses as a result of lower headcounts in sales personnel and decreased sales incentives compared to full year 2024, an RMB 2.1 million decrease in general and administrative expenses, mainly as a result of decreased administrative personnel expenses and a decrease in amortization expenses related to purchase price accounting from a previous completed accreditation, as well as an RMB 0.6 million decrease in research and development expenses. As a Exit result, loss from operations in full year 2025 was R&B 64.1 million compared to R&B 43.2 million in full year 2024. Net loss attributed to ACET in full year 2025 was R&B 48 million compared to R&B 36.1 million. Exit result on Wingate operating loss and was partially offset by a one-time impairment gained from previous investment. Moving to the balance sheet highlights. Last December 34th, 2025, we had R&B 85.2 million in cash-on-cash equivalents, total assets of R&B 408.3 million, total liabilities of R&B 376.3 million, and total shareholder equity of R&B 32 million. Moving on to year-to-date enrollment trends. starting with student enrollment. For fourth quarter 2025, total student enrollment was 1921 compared to 1038 in prior year period, decreased as a result of normalized demand for our service in 2025. The following training student enrollment for fourth quarter 2025 was 568 and the student enrollment for for all other programs for fourth quarter 2025 was 353. Moving on to credit hours delivered. For fourth quarter 2025, total credit hours delivered decreased by 10.5% compared to prior year period. Project-based programs accounting for 74.9% of total credit hours delivered. With that, I will now turn it over to who will expand upon our current business strategy. Jim, please go ahead.

Thank you so much for joining us. 和持续发展的基础 另一方面 我们计划在继续执行现有运营举措的同时 推出更多只在节省成本降低运营开支的措施 为此我们正在优化服务组合 通过扩大在线课程增加学生容量来提高教师利用率 我们开设更多在线课程 以此容纳更多学生 战略性的将销售和教学资源向规模较大的校区集中 并将活跃路比较低的效率进行合并 以实现效益最大化 此外我们正在精简销售架构 优先采用效益高且经过验证的声援渠道 总体而言 这些举措将为我们2026年以及以后整体运营和财务表现的改善 奠定良好的基础 2020年第一季度我们拥有丰富的研究生学习项目准备 其中两点是芬兰可持续设计艺术研修营 该东南营为参与学生提供机会 参访阿尔托大学世界顶尖的设计建筑与工程学府之一 并参加北极中心的可持续发展研讨会 了解北极与萨尼尔文化 亲手创作 训路角雕刻等艺术品 对此为应对学生感兴趣的各类精彩需求 我们与医院以线上线下混合形式举办 2026年竞赛东野营 该营包含面向时装设计 数字设计 未来建筑等不同专业方向的学生训练营 通过ACD教师提供的定制化课程 以及手把手的指导 学生能够为参与国内外赛事做好准备 并强化个人作品及竞争力 这些贴合需求 设计精良 交互用心的项目 联终我们的持续精进的作品及服务,共同体现了我们为ACG学生在创业艺术领域追求梦想,提供前沿产品及服务的长期承诺。 我们将继续专注于强化于现有高收费、高利润的服务组合,并同时推进新服务的创新与推出。 这些努力与严格的成本管理措施相结合,再提高整体利润为ACG以及我们的股东创造价值。 Thank you so much for joining us.

business strategy in 2026. In 2026 and beyond, our goal is to maintain our leading position in China's creative arts education industry despite increased market competition. On one hand, we believe our competitive advantages are rooted in our skilled and highly experienced teaching team, our strong portfolio of high-quality existing and new offerings, as well as an extensive network of global partnerships with leading arts institutions. Our teaching faculty brings together academic excellence and real-world industry experience, enabling us to deliver education that is both creative and practical. Meanwhile, our broad institutional collaborations provide students with greater international exposure, enriched learning opportunities, and smoother pathways to top global arts programs. Together, these strengths form the foundation of ACG's sustained leadership and continued growth in the creative education sector on the other hand we plan to continue executing our existing operational initiatives while introducing additional measures aimed at driving cost savings and reducing operating expenses to the end we're optimizing our service portfolio and enhancing class classroom reutilization by expanding online course offerings and increasing student capacity we're hosting more online classes and accommodating more students strategically allocating sales and teaching resources to larger campus locations and consolidating select campuses in less active markets to maximize efficiency in addition we're streamlining sales organization and prioritizing cost-effective and proven student acquisition channels collectively this initiative should position us well for an overall improved operational and financial performance in 2026 and beyond for q1 2026 we have a strong pipeline of research-based learning project highlighted by the finland sustainable design art research program this winter camp offers participating participating students the opportunity to visit alto university in finland one of the world's leading institutions in design architecture and engineering and take part in arctic center sustainable development workshops to learn about arctic and salmi culture and hand create artworks such as reindeer antler sculptures furthermore in response to multiple contest opportunities our students are interested in we're hosting the 2026 competition winter camp in january through a hybrid format of online and in-person classes the camp includes multiple workshops for students with various areas of focus including fashion design digital design future architecture and more with customized class offerings and hands-on guidance from acg teaching staff students prepare their interdisciplinary portfolios for participation in various international and national competitions and strengthen their application portfolios this relevant well-designed and carefully delivered project along with our core portfolio training services that we continue to improve demonstrate our long-term commitment to delivering state-of-the-art products and services to acg students as they pursue their after aspirations in our creative parts over the long term we remain focused on strengthening our portfolio of existing higher fee and higher margin services while driving innovation and introduction of new services these efforts combined with discipline call management initiatives are designed to enhance overall margin improvement and drive results for acg and our shareholders driving positive student outcome has been the center of our business for years through continuous investment in our teaching team and continuous enhancement of our service portfolio we're able to cater to student populations that cover six major arts disciplines a wide age range and those with different backgrounds and knowledge in their respective areas of arts and addressing their evolving needs we remain dedicated to serving acg students as they pursue their academic and professional goals in 2026 and beyond. With that, operator, let's open it up for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We will pause for a brief moment to poll for questions. If there are no questions at this time, I would like to turn the conference back over to Kevin Ma for closing remarks.

Thanks again to all of you who joined us. If anyone 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 or during our next EARN call.

Thank you. This will conclude today's conference.

You may disconnect your lines at this time, and thank you for your participation.