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ATA Creativity Global Reports 2021 Second Quarter Financial


BEIJING, Aug. 12, 2021 (GLOBE NEWSWIRE) — 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 and six months ended June 30, 2021 (“Second Quarter 2021” and “First Half 2021”, respectively).

Second Quarter 2021 and First Half 2021 Highlights

  • During Second Quarter 2021, student enrollment increased to 1,051, from 772 in the prior-year period. Of these students, 561 were enrolled in ACG’s portfolio training programs. 28,445 credit hours were delivered during Second Quarter 2021, compared to 27,933 in the prior-year period.
  • Second Quarter 2021 net revenues increased 39.4% to RMB36.8 million (US$5.7 million), from RMB26.4 million in the prior-year period, primarily driven by increased contributions from portfolio training and other educational services.
  • Second Quarter 2021 net income attributable to ACG was RMB14.1 million (US$2.2 million), compared to net loss attributable to ACG of RMB32.1 million in the prior-year period.
  • First Half 2021 net revenues increased 25.9% to RMB74.4 million (US$11.5 million), from RMB59.1 million in the prior-year period.
  • First Half 2021 net loss attributable to ACG improved to RMB4.9 million (US$0.8 million), compared to RMB52.5 million in the prior-year period.
  • RMB91.4 million (US$14.2 million) in cash and cash equivalents as of June 30, 2021

Management Commentary

Mr. Kevin Ma, Chairman and CEO of ACG, stated, “We were gratified to see improving trends from the post-pandemic recovery continue into Second Quarter 2021, during which we achieved over 39% growth on the top line and improved gross margin primarily driven by increased contributions from our core portfolio training services business. During the period, the Company decided to sell one of its legacy businesses in K-12 education assessment services, which will enable us to focus our efforts on growing the core business, international education services. We increased our sales and marketing efforts through various promotional activities, which helped improve our enrollment numbers for the period. For Second Quarter 2021, enrollment in our portfolio training programs increased by 26.4% to 561 students from the prior-year period. As we have made a conscious effort in recent years to shift more portfolio training students toward project-based programs, credit hours delivered for project-based programs increased over 20% during the period, though there was only a slight increase in total credit hours delivered. With the increasing shift to project-based programs, we have restructured compensation for our instructors, motivating them to utilize fewer credit hours for completing a project while continuing to maintain the quality of education and support for students. This has contributed to our top line growth when compared with the prior-year period and has also helped to improve service delivery efficiencies.”

Outlook

Mr. Jun Zhang, President of ACG, stated, “We continue to see tangible results from the work we did to strengthen our leads and sales management platform, as well as our program offerings in response to the pandemic environment, particularly as we are in the heart of the busier summer travel season. As we shared in May, we are not offering study abroad programs this summer given the lingering impact of the pandemic and are instead working closely with our overseas partners in offering alternative programs, such as online bootcamps, internships and other on-site workshop programs. We are also offering new themed domestic travel programs, similar to those we held last summer, which were well received by students. We believe research-based learning services will continue to contribute to our top line in future periods as we look to expand our experiential offerings beyond the summer months.”

Mr. Zhang continued, “A few weeks ago, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a set of guidelines focused on companies providing after-school academic course tutoring services for students receiving compulsory education (the “Guidelines”). As ACG focuses on creative arts education and experiential learning, we do not anticipate our business to be materially impacted by these Guidelines. We remain vigilant in maintaining compliance with applicable rules and regulations relating to our operations. ACG remains well capitalized and well positioned to execute on future business opportunities.”

Operating Review

Enrollment Update

ACG student enrollment for Second Quarter 2021 was 1,051, of which 561 were enrolled in portfolio training programs, which consisted of time-based programs and project-based programs.

A total of 28,445 credit hours were delivered for portfolio training programs during Second Quarter 2021, of which 14,224 credit hours were delivered for time-based programs and 14,221 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 Second Quarter 2021, compared to those for the prior-year period:

  Second
Quarter Ended
June 30, 2021
  Second
Quarter Ended
June 30, 2020
  % Change
  No. of Credit
Hours
  No. of Credit
Hours
   
           
Time-based Program 14,224   16,191   (12.1%)
Project-based Program 14,221   11,742   21.1%
Total 28,445   27,933   1.8%

During Second Quarter 2021, 490 students were enrolled in ACG’s other programs, which primarily consisted of overseas study counselling services, research-based learning services, as well as foreign language training services.
     
Second Quarter 2021 Financial Review – GAAP Results

ACG’s total net revenues for Second Quarter 2021 increased 39.4% to RMB36.8 million (US$5.7 million), from RMB26.4 million in the prior-year period, driven primarily by portfolio training and other educational services as more services were delivered than during the prior-year period when more restrictions on service delivery were in place due to the COVID-19 pandemic. Revenues from portfolio training programs were RMB29.1 million, or 79.1% of total net revenues, during the period. Revenues from overseas study counselling services, research-based learning services and other educational services were RMB7.7 million, or 20.9% of total net revenues, during the period.

Gross profit for Second Quarter 2021 increased 142.4% to RMB16.0 million (US$2.5 million), from RMB6.6 million in the prior-year period. Gross margin improved to 43.4% during the period, compared to 25.1% in the prior-year period. The improvement was contributed by the operating efficiency gained from the ongoing shift of our portfolio training mix toward project-based programs and related cost optimization.

Total operating expenses for Second Quarter 2021 decreased 11.9% to RMB39.8 million (US$6.2 million), from RMB45.2 million in the prior-year period. This decrease was primarily due to an RMB12.9 million decrease in G&A expenses as a result of the deferral of the final RMB10.0 million to fund ACG‘s research project with the Research Institute of Future Education and Assessment of Tsinghua University this year and decreased professional fees incurred, which was partially offset by an RMB6.7 million increase in selling expenses primarily related to higher sales performance bonus expense.

Loss from operations for Second Quarter 2021 improved to RMB23.8 million (US$3.7 million), from RMB38.5 million in the prior-year period.

Net income attributable to ACG for Second Quarter 2021 was RMB14.1 million (US$2.2 million), compared to a net loss attributable to ACG of RMB32.1 million in the prior-year period.

For Second Quarter 2021, basic and diluted earnings per common share attributable to ACG were both RMB0.21 (US$0.03), compared to basic and diluted losses per common share of RMB0.54 for the prior-year period. Basic and diluted earnings per ADS attributable to ACG were both RMB0.42 (US$0.06), compared to basic and diluted losses per ADS of RMB1.08 in the prior-year period.

First Half 2021 Financial Review – GAAP Results

ACG’s total net revenues for First Half 2021 increased 25.9 % to RMB74.4 million (US$11.5 million), from RMB59.1 million in the prior-year period, driven primarily by increased contributions from portfolio training and other educational services. Revenues from portfolio training programs were RMB53.0 million, or 71.2% of total net revenues, during the period. Revenues from overseas study counselling services, research-based learning services and other educational services were RMB21.4 million, or 28.8% of total net revenues, during the period.

Gross profit for First Half 2021 increased 67.4% to RMB30.8 million (US$4.8 million), from RMB18.4 million in the prior-year period. Gross margin improved to 41.5% during the period, compared to 31.1% in the prior-year period.

Total operating expenses for First Half 2021 decreased 6.9% to RMB77.9 million (US$12.1 million), from RMB83.7 million in the prior-year period. The decrease was primarily due to an RMB15.1 million decrease in G&A expenses, partially offset by an RMB8.5 million increase in selling expenses mainly related to Huanqiuyimeng operations, as described in the Second Quarter 2021 financial review above.

Loss from operations for First Half 2021 improved to RMB47.1 million (US$7.3 million), from RMB65.0 million in the prior-year period.

Net loss attributable to ACG for First Half 2021 improved to RMB4.9 million (US$0.8 million), compared to RMB52.5 million in the prior-year period.

For First Half 2021, basic and diluted losses per common share attributable to ACG were both RMB0.11 (US$0.02), compared to RMB0.89 for the prior-year period. Basic and diluted losses per ADS attributable to ACG were both RMB0.22 (US$0.04), compared to RMB1.78 in the prior-year period.

Non-GAAP Measures

Adjusted net income attributable to ACG for Second Quarter 2021, which excludes share-based compensation expense and foreign currency exchange loss (non-GAAP), was RMB14.7 million (US$2.3 million), compared to adjusted net loss of RMB31.7 million in the prior-year period.

Basic and diluted earnings per common share attributable to ACG excluding share-based compensation expense and foreign currency exchange loss (non-GAAP) for Second Quarter 2021, were RMB0.22 (US$0.03). Basic and diluted earnings per ADS attributable to ACG excluding share-based compensation expense and foreign currency exchange loss (non-GAAP) for Second Quarter 2021 were RMB0.44 (US$0.06).

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 basic and diluted earnings per ADS for Second Quarter 2021 were 31.5 million and 31.6 million, respectively. Each ADS represents two common shares.

Balance Sheet Highlights

As of June 30, 2021, ACG’s cash and cash equivalents were RMB91.4 million (US$14.2 million), working capital deficit was RMB183.4 million (US$28.4 million), and total shareholders’ equity was RMB220.3 million (US$34.1 million); compared to cash and cash equivalents of RMB112.7 million, working capital deficit of RMB153.9 million, and total shareholders’ equity of RMB199.2 million, respectively, as of December 31, 2020.

Conference Call and Webcast Information (With Accompanying Presentation)

ACG will host a conference call at 9 p.m. Eastern Time on Thursday, August 12, 2021 (9 a.m. Beijing time on Friday, August 13, 2021), during which management will discuss the results of the quarter ended June 30, 2021.

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://78449.themediaframe.com/dataconf/productusers/atac/mediaframe/46104/indexl.html.     

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 ability to operate efficiently and maintain continued financial strength under unusual circumstances; ACG’s growth strategy, anticipated growth prospects and subsequent business activities; market demand for ACG’s portfolio training programs and other education services; the impact of the COVID-19 pandemic and the Guidelines on ACG and its operations; and ACG’s plan and anticipated benefits of the measures implemented in response to the COVID-19 pandemic.

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 integrate the acquired business, its ability to maintain market share amid increasing competition, its ability to identify and execute on M&A opportunities within the education sector, the economy of China, uncertainties with respect to China’s legal and regulatory environments, the impact of the COVID-19 pandemic 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, 2020, 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, 2020.

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 June 30, 2021, into U.S. dollars are included solely for the convenience of readers and have been made at the rate of RMB6.4566 to US$1.00, the noon buying rate as of June 30, 2021, 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:

 
ATA CREATIVITY GLOBAL AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
  December 31,     June 30,     June 30,  
  2020     2021     2021  
  RMB     RMB     USD  
ASSETS          
Current assets:          
Cash and cash equivalents 112,723,433     91,364,510     14,150,561  
Accounts receivable, net 2,245,194     711,400     110,182  
Prepaid expenses and other current assets 5,970,973     5,974,167     925,281  
Total current assets 120,939,600     98,050,077     15,186,024  
           
Long-term investments 44,000,000     44,000,000     6,814,732  
Goodwill 194,754,963     194,754,963     30,163,703  
Property and equipment, net 38,119,216     37,830,868     5,859,255  
Intangible assets, net 110,586,111     101,969,444     15,793,056  
Right-of-use assets 41,779,086     42,146,872     6,527,719  
Deferred income tax assets 2,491,792     2,535,181     392,650  
Other non-current assets 22,950,264     25,828,596     4,000,340  
Total assets 575,621,032     547,116,001     84,737,479  
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accrued expenses and other payables 47,020,182     39,998,217     6,194,935  
Short-term loans 6,801,000          
Payable for business acquisition 4,642,082          
Lease liabilities-current 16,972,187     17,065,279     2,643,075  
Deferred revenues 199,448,112     224,376,519     34,751,498  
Total current liabilities 274,883,563     281,440,015     43,589,508  
           
Lease Liabilities-non-current 24,005,765     22,807,040     3,532,361  
Deferred income tax liabilities 28,985,472     22,616,674     3,502,877  
Total liabilities 327,874,800     326,863,729     50,624,746  
           
Mezzanine equity-redeemable non-controlling interests 48,498,368          
           
Shareholders’ equity:          
Common shares 4,716,675     4,720,147     731,058  
Treasury shares (11,625,924 )   (10,277,602 )   (1,591,798 )
Additional paid-in capital 541,272,503     540,507,303     83,713,921  
Accumulated other comprehensive loss (37,424,722 )   (37,467,613 )   (5,802,994 )
Retained earnings (accumulated deficit) (298,533,669 )   (281,405,049 )   (43,584,092 )
Total shareholders’ equity attributable to ACG 198,404,863     216,077,186     33,466,095  
Non-redeemable non-controlling interests 843,001     4,175,086     646,638  
Total shareholders’ equity 199,247,864     220,252,272     34,112,733  
Commitments and contingencies          
Total liabilities, mezzanine equity and shareholders’ equity 575,621,032     547,116,001     84,737,479  

 

 
ATA CREATIVITY GLOBAL AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
  Three-month Period Ended
  June 30,
    June 30,
    June 30,
 
  2020     2021     2021  
  RMB   RMB   USD
Net revenues 26,396,218     36,760,950     5,693,546  
Cost of revenues 19,764,559     20,808,818     3,222,876  
Gross profit 6,631,659     15,952,132     2,470,670  
           
Operating expenses:          
Research and development 2,025,581     2,729,866     422,802  
Sales and marketing 9,943,378     16,648,618     2,578,543  
General and administrative 33,277,466     20,426,090     3,163,598  
Total operating expenses 45,246,425     39,804,574     6,164,943  
Other operating income, net 111,483     5,625     871  
Loss from operations (38,503,283 )   (23,846,817 )   (3,693,402 )
Other income (expense):          
Investment income (loss) (1,092,035 )   33,542,154     5,195,018  
Interest income, net of interest expenses 263,513     294,033     45,540  
Foreign currency exchange gain (loss), net 8,104     (244,406 )   (37,854 )
Income (loss) before income taxes (39,323,701 )   9,744,964     1,509,302  
Income tax benefit (5,386,716 )   (3,687,455 )   (571,114 )
Net income (loss) (33,936,985 )   13,432,419     2,080,416  
Net loss attributable to redeemable non-controlling interests (575,117 )   (277,089 )   (42,916 )
Net loss attributable to non-redeemable non-controlling interests (1,281,273 )   (435,626 )   (67,470 )
Net income (loss) attributable to ACG (32,080,595 )   14,145,134     2,190,802  
           
Other comprehensive loss:          
Foreign currency translation adjustment, net of nil income taxes (1,222,042 )   (133,390 )   (20,659 )
Comprehensive income (loss) attributable to ACG (33,302,637 )   14,011,744     2,170,143  
           
Basic and diluted earnings (losses) per common share attributable to ACG (0.54 )   0.21     0.03  
Basic and diluted earnings (losses) per ADS attributable to ACG (1.08 )   0.42     0.06  

 

 
ATA CREATIVITY GLOBAL AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
  Six-month Period Ended
  June 30,
    June 30,
    June 30,
 
  2020     2021     2021  
  RMB   RMB   USD
Net revenues 59,099,623     74,350,495     11,515,425  
Cost of revenues 40,744,111     43,524,823     6,741,137  
Gross profit 18,355,512     30,825,672     4,774,288  
           
Operating expenses:          
Research and development 4,406,670     5,246,592     812,594  
Sales and marketing 21,446,003     29,971,605     4,642,011  
General and administrative 57,819,609     42,690,348     6,611,893  
Total operating expenses 83,672,282     77,908,545     12,066,498  
Other operating income, net 346,935     11,863     1,837  
Loss from operations (64,969,835 )   (47,071,010 )   (7,290,373 )
Other income (expense):          
Investment income (loss) (1,124,462 )   33,542,154     5,195,018  
Interest income, net of interest expenses 651,092     574,772     89,021  
Foreign currency exchange loss, net (61,024 )   (156,786 )   (24,283 )
Loss before income taxes (65,504,229 )   (13,110,870 )   (2,030,617 )
Income tax benefit (8,173,252 )   (6,407,151 )   (992,341 )
Net loss (57,330,977 )   (6,703,719 )   (1,038,276 )
Net loss attributable to redeemable non-controlling interests (1,147,865 )   (714,121 )   (110,603 )
Net loss attributable to non-redeemable non-controlling interests (3,646,060 )   (1,090,975 )   (168,971 )
Net loss attributable to ACG (52,537,052 )   (4,898,623 )   (758,702 )
           
Other comprehensive income (loss):          
Foreign currency translation adjustment, net of nil income taxes 1,573,460     (42,891 )   (6,643 )
Comprehensive loss attributable to ACG (50,963,592 )   (4,941,514 )   (765,345 )
           
Basic and diluted losses per common share attributable to ACG (0.89 )   (0.11 )   (0.02 )
Basic and diluted losses per ADS attributable to ACG (1.78 )   (0.22 )   (0.04 )
 
RECONCILIATIONS OF NON-GAAP MEASURES
TO THE MOST COMPARABLE GAAP MEASURES
 
  Three-month Period Ended   Six-month Period Ended
  June 30,     June 30,   June 30,     June 30,  
  2020     2021   2020     2021  
  RMB   RMB   RMB   RMB
GAAP net income (loss) attributable to ACG (32,080,595 )   14,145,134   (52,537,052 )   (4,898,623 )
Share-based compensation expenses 411,293     264,067   996,092     489,298  
Foreign currency exchange loss (gain), net (8,104 )   244,406   61,024     156,786  
Non-GAAP net income (loss) attributable to ACG (31,677,406 )   14,653,607   (51,479,936 )   (4,252,539 )
               
GAAP earnings (losses) per common share attributable to ACG              
Basic and diluted (0.54 )   0.21   (0.89 )   (0.11 )
               
Non-GAAP earnings (losses) per common share attributable to ACG              
Basic and diluted (0.53 )   0.22   (0.87 )   (0.10 )

ATA Creativity Global



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