ATA Creativity Global (“ACG” or the “Company”, Nasdaq: AACG), an international educational services company focused on providing quality learning experiences that cultivate and enhance students’ creativity, today announced preliminary unaudited financial results for the quarter ended March 31, 2022 (“First Quarter 2022”).

First Quarter 2022 Highlights

  • During First Quarter 2022, student enrollment was 997, an increase of 3.4% from 964 in the prior-year period. Of these students, 537 were enrolled in ACG’s portfolio training programs. Approximately 27,494 credit hours were delivered during First Quarter 2022, compared to 27,865 in the prior-year period
  • First Quarter 2022 net revenues of RMB42.1 million (US$6.6 million), an increase of 12.1% from RMB37.6 million in the prior-year period
  • First Quarter 2022 net loss attributable to ACG improved to RMB15.9 million (US$2.5 million), compared to RMB19.0 million in the prior-year period
  • RMB62.4 million (US$9.8 million) in cash and cash equivalents as of March 31, 2022

Management Commentary

Mr. Kevin Ma, Chairman and CEO of ACG, stated, “We were pleased to begin 2022 on a positive note, delivering stable year-over-year growth in total revenues driven primarily by growth in our portfolio training and overseas study counselling services businesses, which helped us to continue reducing losses. We saw a modest increase in student enrollment with credit hours delivered remaining stable during the period. Students have continued to express interest in our research-based learning offerings including a variety of themed domestic travel programs. For example, our Environmental Protection Cultural and Creative Design Camp held in Xidao, an island in Hainan province, received positive feedback from participating students who had the opportunity to learn from artists at the Xidao Protection Center, recycle marine products and create both individual and group original artwork. We are very pleased that many of our students have received offers of admission from top schools, some of whom have also been awarded scholarships. ACG is committed to enabling positive outcomes for its students and will strive to maintain the quality of our continually expanding offerings and teaching staff.”

Outlook

Mr. Jun Zhang, President of ACG, stated, “We continue to be in a state of gradual recovery as ACG navigates the ongoing challenges caused by the recent resurgence of COVID-19 throughout China, which has had a notable impact on some of our core cities such as Shanghai. We believe that our performance throughout the pandemic is a testament to ACG’s resilience and resourcefulness in the face of unprecedented circumstances. In light of temporary lockdowns in certain cities, we have successfully transitioned the majority of our offline courses to online delivery for students impacted by lockdowns and will continue to operate in line with local government guidelines. Since launching our research-based learning services business in 2020, students have embraced the possibility of learning through hands-on experience, and we continue to see demand for these offerings grow, resulting in increased revenue contributions over time. As countries around the world begin to relax travel restrictions, we believe the demand for research-based learning and overseas study counselling services will continue to gradually increase. Meanwhile, we continue to explore opportunities to develop new programs that would enable ACG to better serve existing students and potentially open doors for other student populations interested in an arts education. With China’s national educational efforts in mind, we remain positive in the future of the creative arts education industry while being vigilant and are constantly exploring new partnerships with schools and institutions for future business opportunities.”

Operating Review

Enrollment Update

ACG student enrollment for First Quarter 2022 was 997, of which 537 were enrolled in its portfolio training programs, which consist of time-based programs and project-based programs.

A total of 27,494 credit hours were delivered for portfolio training programs during First Quarter 2022, of which 13,070 credit hours were delivered for time-based programs and 14,424 credit hours were delivered for project-based programs. These courses were delivered either in person through ACG’s nationwide training center network or via online platform.

The following is a summary of the credit hours delivered for ACG’s portfolio training programs for First Quarter 2022, compared to those for the prior-year period:

    FirstQuarter Ended Mar. 31, 2022     FirstQuarter Ended Mar. 31, 2021     % Change
    No. of Credit Hours     No. of Credit Hours      
                       
Time-based Program     13,070       16,135       (19.0%)
Project-based Program     14,424       11,730       23.0%
Total     27,494       27,865       (1.3%)

During First Quarter 2022, 460 students were enrolled in ACG’s other programs, which mainly consisted of overseas study counselling, research-based learning services and foreign language training services.

First Quarter 2022 Financial Review – GAAP Results

ACG’s total net revenues for First Quarter 2022 increased 12.1% to RMB42.1 million (US$6.6 million), from RMB37.6 million in the prior-year period, which was primarily due to increased contributions from the portfolio training and overseas study counselling services businesses. Revenues from portfolio training programs were RMB26.7 million, or 63.3% of total net revenues, during the period. Revenues from overseas study counselling, research-based learning services and other educational services were RMB15.4 million, or 36.7% of total net revenues, during the period.

Gross profit for First Quarter 2022 increased 29.6% to RMB19.3 million (US$3.0 million), from RMB14.9 million in the prior-year period. Gross margin improved to 45.7% during the period, compared to 39.6% in the prior-year period.

Total operating expenses for First Quarter 2022 were RMB38.0 million (US$6.0 million), compared to RMB38.1 million in the prior-year period. Sales and marketing expenses increased by RMB1.4 million due to increased labor costs associated with increased headcount, which was offset by a decrease in general and administrative expense of RMB0.6 million mainly due to decreased professional fees as well as a decrease in research and development expense of RMB0.8 million, which was primarily caused by a decrease in research and development expense related to the K-12 education assessment business, which was disposed of in June 2021.

Loss from operations for First Quarter 2022 improved to RMB18.8 million (US$3.0 million), compared to RMB23.2 million in the prior-year period, primarily as a result of the increased gross profit mentioned above.

Net loss attributable to ACG for First Quarter 2022 improved to RMB15.9 million (US$2.5 million), from RMB19.0 million in the prior-year period.

For First Quarter 2022, basic and diluted losses per common share attributable to ACG were both RMB0.25 (US$0.04), compared to RMB0.33 for the prior-year period. Basic and diluted losses per ADS attributable to ACG were both RMB0.50 (US$0.08), compared to RMB0.66 in the prior-year period.

Non-GAAP Measures

Adjusted net loss attributable to ACG for First Quarter 2022, which excludes share-based compensation expense and foreign currency exchange gain, net (non-GAAP), was RMB15.6 million (US$2.5 million), compared to adjusted net loss of RMB18.9 million in the prior-year period.

Basic and diluted losses per common share attributable to ACG excluding share-based compensation expense and foreign currency exchange gain, net (non-GAAP) for First Quarter 2022, were RMB0.25 (US$0.04). Basic and diluted losses per ADS attributable to ACG excluding share-based compensation expense and foreign currency exchange gain, net (non-GAAP) for First Quarter 2022 were RMB0.50 (US$0.08).

Please see the note about non-GAAP measures and the reconciliation table at the end of this press release.

Other Data

The number of weighted average ADSs used to calculate both basic and diluted earnings per ADS for First Quarter 2022 were 31.4 million. Each ADS represents two common shares.

Balance Sheet Highlights

As of March 31, 2022, ACG’s cash and cash equivalents were RMB62.4 million (US$9.8 million), working capital deficit was RMB204.9 million (US$32.3 million), and total shareholders’ equity was RMB174.7 million (US$27.6 million); compared to cash and cash equivalents of RMB71.3 million, working capital deficit of RMB192.6 million, and total shareholders’ equity of RMB190.9 million, respectively, as of December 31, 2021.

Conference Call and Webcast Information (With Accompanying Presentation)

ACG will host a conference call at 9 p.m. Eastern Time on Thursday, May 12, 2022 (9 a.m. Beijing time on Friday, May 13, 2022), during which management will discuss the results of the quarter ended March 31, 2022.

To participate in the conference call, please use the following dial-in numbers about 10 minutes prior to the scheduled conference call time:

U.S. & Canada (Toll-Free):   +1 (877) 407-9122
International (Toll):   +1 (201) 493-6747
    Local Access    
China:   (400) 120 2840    
Hong Kong:   (800) 965561    
         

A live webcast of the conference call can be accessed at: https://services.choruscall.com/mediaframe/webcast.html?webcastid=BHbBajpE.  

An accompanying slide presentation will also be made available 30 minutes prior to the conference call at the investor relations section of ACG’s website (https://ir.atai.net.cn/). To listen to the webcast, please visit ACG’s website a few minutes prior to the start of the call to register, download, and install any necessary audio software.

A replay will be available shortly after the call and will remain available for 90 days.

About ATA Creativity Global

ATA Creativity Global is an international educational services company focused on providing quality learning experiences that cultivate and enhance students’ creativity. ATA Creativity Global offers a wide range of education services consisting primarily of portfolio training, research-based learning services, overseas study counselling and other educational services through its training center network. For more information, please visit ACG’s website at www.atai.net.cn.

Cautionary Note Regarding Forward-looking Statements

This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in 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,” “plan,” “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; market demand for ACG’s portfolio training programs and other education services mainly including research-based learning and overseas study counselling services; the impact of COVID-19 on ACG and its operations; and ACG’s plan and anticipated benefits of the measures implemented in response to COVID-19.

The factors that could cause the Company’s actual financial and operating results to differ from what the Company currently anticipates may include its ability to develop and create content that could accommodate needs of potential students, its ability to provide effective creative related international education services and control sales and marketing expenses, its recognition in the marketplace for services it delivered and branding it established, its ability to maintain market share amid increasing competition, its ability to identify and execute on M&A opportunities within the education sector and its ability to integrate the acquired business, the economy of China, uncertainties with respect to China’s legal and regulatory environments, the impact of COVID-19 and other factors stated in the Company’s filings with the U.S. Securities and Exchange Commission (“SEC”).

The financial information contained in this release should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 20-F for its fiscal year ended December 31, 2021, and other filings that ACG has made with the SEC. The filings are available on the SEC’s website at www.sec.gov and at ACG’s website at www.atai.net.cn. For additional information on the risk factors that could adversely affect the Company’s business, financial conditions, results of operations, and prospects, please see the “Risk Factors” section of the Company’s Form 20-F for the fiscal year ended December 31, 2021.

The forward-looking statements in this release involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates, and projections about ACG and the markets in which it operates. The Company undertakes no obligation to update forward-looking statements, which speak only as of the date of this release, to reflect subsequent events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that its expectations and assumptions expressed in these forward-looking statements are reasonable, the Company cannot assure you that its expectations and assumptions will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

Currency Convenience Translation

The Company’s financial information is stated in Renminbi (“RMB”), the currency of the People’s Republic of China. The translations of RMB amounts for the quarter ended March 31, 2022, into U.S. dollars are included solely for the convenience of readers and have been made at the rate of RMB6.3393 to US$1.00, the noon buying rate as of March 31, 2022, in New York for cable transfers in RMB per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board. Such translations should not be construed as representations that RMB amounts could be converted into U.S. dollars at that rate or any other rate, or to be the amounts that would have been reported under U.S. generally accepted accounting principles (“GAAP”).

About Non-GAAP Financial Measures

To supplement ACG’s consolidated financial information presented in accordance with U.S. GAAP, ACG uses the following non-GAAP financial measures: net income (loss) excluding share-based compensation expense and foreign currency exchange gain or loss, and basic and diluted earnings (losses) per common share and ADS excluding share-based compensation expense and foreign currency exchange gain or loss.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. ACG believes these non-GAAP financial measures provide meaningful supplemental information about its performance by excluding share- based compensation expense and foreign currency exchange gain or loss, which may not be indicative of its operating performance.

ACG believes that both management and investors benefit from these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to ACG’s historical performance. ACG computes its non-GAAP financial measures using a consistent method from period to period. ACG believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using non-GAAP net income (loss) excluding share-based compensation expense and foreign currency exchange gain or loss and basic and diluted earnings (losses) per common share and per ADS excluding share-based compensation expense and foreign currency exchange gain or loss is that share-based compensation charges and foreign currency exchange gain or loss have been, and are expected to continue to be for the foreseeable future, a significant recurring expense in ACG’s business.

Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The table captioned “Reconciliations of Non-GAAP Measures to the Most Comparable GAAP Measures” shown at the end of this news release has more details on the reconciliations between GAAP financial measures that are most directly comparable to the non-GAAP financial measures used by ACG.

For more information on our company, please contact the following individuals:

At the Company   Investor Relations
ATA Creativity Global   The Equity Group Inc.
Ruobai Sima, CFO   Carolyne Y. Sohn, Vice President
+86 10 6518 1133 x 5518   415-568-2255
simaruobai@acgedu.cn   csohn@equityny.com
     
    Alice Zhang, Investor Relations Analyst
    212-836-9610
    azhang@equityny.com

ATA CREATIVITY GLOBAL AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

    December 31,     March 31,     March 31,    
    2021     2022     2022    
    RMB     RMB     USD    
ASSETS              
Current assets:              
Cash and cash equivalents   71,339,361     62,413,833     9,845,540    
Accounts receivable   938,189     352,000     55,527    
Prepaid expenses and other current assets   3,129,600     6,629,687     1,045,807    
Total current assets   75,407,150     69,395,520     10,946,874    
               
Long-term investments   38,000,000     38,000,000     5,994,353    
Property and equipment, net   36,503,984     35,829,815     5,652,014    
Intangible assets, net   93,352,778     89,224,444     14,074,810    
Goodwill   194,754,963     194,754,963     30,721,840    
Other non-current assets   26,739,026     26,085,747     4,114,925    
Right-of-use assets   42,417,409     40,523,614     6,392,443    
Total assets   507,175,310     493,814,103     77,897,259    
               
LIABILITIES AND SHAREHOLDERS’ EQUITY              
Current liabilities:              
Accrued expenses and other payables   48,174,095     48,130,774     7,592,442    
Lease liabilities-current   17,351,427     17,451,419     2,752,894    
Deferred revenues   202,453,092     208,692,644     32,920,456    
Total current liabilities   267,978,614     274,274,837     43,265,792    
               
Lease liabilities-non-current   23,365,840     22,106,024     3,487,140    
Deferred income tax liabilities   24,931,322     22,767,992     3,591,562    
Total liabilities   316,275,776     319,148,853     50,344,494    
               
Shareholders’ equity:              
Common shares   4,720,147     4,720,147     744,585    
Treasury shares   (9,818,754 )   (9,580,716 )   (1,511,321 )  
Additional paid-in capital   540,583,564     540,576,988     85,273,924    
Accumulated other comprehensive loss   (37,559,847 )   (37,594,335 )   (5,930,361 )  
Accumulated deficit   (310,156,018 )   (326,009,894 )   (51,426,797 )  
Total shareholders’ equity attributable to ACG   187,769,092     172,112,190     27,150,030    
Non-redeemable non-controlling interests   3,130,442     2,553,060     402,735    
Total shareholders’ equity   190,899,534     174,665,250     27,552,765    
Commitments and contingencies              
Total liabilities and shareholders’ equity   507,175,310     493,814,103     77,897,259    

ATA CREATIVITY GLOBAL AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

    Three-month Period Ended  
    March 31,       March 31,       March 31,    
    2021       2022       2022    
    RMB     RMB     USD  
Net revenues     37,589,545         42,138,629         6,647,205    
Cost of revenues     22,716,005         22,867,238         3,607,218    
Gross profit     14,873,540         19,271,391         3,039,987    
                         
Operating expenses:                        
Research and development     2,516,726         1,683,070         265,498    
Sales and marketing     13,322,987         14,652,264         2,311,338    
General and administrative     22,264,258         21,713,488         3,425,219    
Total operating expenses     38,103,971         38,048,822         6,002,055    
Other operating income, net     6,238         5,505         868    
Loss from operations     (23,224,193 )       (18,771,926 )       (2,961,200 )  
Other income:                        
Interest income, net of interest expenses     280,739         209,165         32,995    
Foreign currency exchange gain, net     87,620         1,191         188    
Loss before income taxes     (22,855,834 )       (18,561,570 )       (2,928,017 )  
Income tax benefit     (2,719,696 )       (2,130,312 )       (336,048 )  
Net loss     (20,136,138 )       (16,431,258 )       (2,591,969 )  
Net loss attributable to redeemable non-controlling interests     (437,032 )                  
Net loss attributable to non-redeemable non-controlling interests     (655,349 )       (577,382 )       (91,080 )  
Net loss attributable to ACG     (19,043,757 )       (15,853,876 )       (2,500,889 )  
                         
Other comprehensive income (loss):                        
Foreign currency translation adjustment, net of nil income taxes     90,499         (34,488 )       (5,440 )  
Comprehensive loss attributable to ACG     (18,953,258 )       (15,888,364 )       (2,506,329 )  
                         
Basic and diluted losses per common share attributable to ACG     (0.33 )       (0.25 )       (0.04 )  
Basic and diluted losses per ADS attributable to ACG     (0.66 )       (0.50 )       (0.08 )  

RECONCILIATIONS OF NON-GAAP MEASURESTO THE MOST COMPARABLE GAAP MEASURES

      Three-month Period Ended  
      March 31,         March 31,    
      2021         2022    
      RMB       RMB  
GAAP net loss attributable to ACG     (19,043,757 )       (15,853,876 )  
Share-based compensation expenses     225,231         234,690    
Foreign currency exchange gain, net     (87,620 )       (1,191 )  
Non-GAAP adjusted net loss attributable to ACG     (18,906,146 )       (15,620,377 )  
                 
GAAP losses per common share attributable to ACG                
Basic and diluted     (0.33 )       (0.25 )  
                 
Non-GAAP adjusted losses per common share attributable to ACG                
Basic and diluted     (0.32 )       (0.25 )  
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