AACG Earnings Call Transcriptbeta

Executives: Carolyne Sohn - The Equity Group Amy Tung - CFO Kevin Ma - Chairman & CEO Jack Huang - President

Analysts::

Operator: Good day, ladies and gentlemen, and welcome to ATA Inc. Financial Results Conference Call for the Third and Nine Month Transition period ended in December 31, 2017. My name is Sanjiv, and I'll be your event moderator for today. [Operator Instructions]. And now I would now like to hand over to Carolyne. Carolyne, please proceed.

Carolyne Sohn: Thank you, Operator. Hello everyone. Thank you for joining us. The press release announcing ATA's results for the three and nine months ended December 31, 2017 are available at the IR section of the Company's website at www.atai.net.cn. As part of this conference call, the Company has been accompanying a slide presentation available on its website. In addition, a replay of this broadcast will be made available at ATA’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 contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. 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 ATA 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 the 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 three months ended December 31, 2017, are converted from RMB using an exchange rate of RMB6.5063 to US$1; the noon buying rate as of December 31, 2017. All historical conversions are accurate as of the time reported unless otherwise noted. The Company reports its financial results under U.S. GAAP and 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. As previously disclosed on the Company's Form 6-K filing with the SEC on June 2, 2017, ATA is changing its fiscal year end from March 31st to December 31st. The Company will file a transition report on Form 20-F in this coming weeks to account for the transition period from April 1, 2017 to December 31, 2017. On today's call, this Company's CFO, Ms. Amy Tung, will begin with a brief update on the status of the acquisition of ATA Online, the wholly owned subsidiary of the company. She will then provide an overview of operational and financial highlights for the three month period and nine month transition periods ended December 31, 2017. ATA’s Chairman and CEO, Mr. Kevin Ma and President, Jack Huang will conclude the remarks with a brief discussion on ATA’s outlook and growth strategy in 2018 before opening the floor for questions. With that, I'll turn the call over to ATA's CFO, Ms. Amy Tung. Please go ahead, Amy.

Amy Tung: Thank you, Carolyne and welcome everyone. I will begin on slide five with a few operating highlights. Many of you are likely aware that the company has entered into a share purchase agreement with a group of investors for the sale of ATA Online. Our testing services business under the terms of the share purchase agreement the buyer group has agreed to acquire all of the outstanding equity interests of ATA Online which is currently held directly or indirectly by ATA for a total consideration of $200 million in cash. Mr. Ma has paid a cash deposit in the amount of $20 million to ATA as collateral and security for the payment upgradation of the buyer group as agreed under the share purchase agreement. As previously announced on February 6, the closing of the transaction is expected to take place in three stages subject to the discretion of where is condition precedent in the share purchase agreement. The first of the three closing [ph] is expected to be completed by early second quarter and the transaction completion is expected in the third quarter of 2018. We will continue to provide updates but caution investors that there are no assurances that of the conditions for the closing state in the share purchase agreement will be satisfied or that the transaction will ultimately be completed. Additional information of the transaction can be found in the Form 6(k) ATA filed on February 6, 2018 which investors may assess on the SEC filing page on ATA's website or on the U.S. Securities and Exchange Commission website at www.sec.gov. Jack will provide some background on ATA Inc., plans for the public company following the closing of the ATA online sales when he speaks about the company's outlook and strategy in 2018. Moving on to operational highlights ATA delivered 7.3 million billable tests during the three months end of December 31, 2017 compared to 7.0 million in the prior year period. From October 14 to 15 2017 we successfully delivered the CPA exam across China over our nation-wide test deliver platform for the six consecutive year. The number of test package you for the CBA exam hits a new record of 2.9 million compared to 2.2 million last year. We also saw increased exam volumes from some of our existing large scale exams including the National Tax Advisor occupational qualification exam, national tour guide qualification exam and the qualification exam for housing and urban construction field professionals. In addition, ATA delivered new exams such as the National Real Estate Broker qualification exam and National Tax System [indiscernible] qualification test. We also continued expanding the national and local tax law knowledge contest to new cities and provinces including in [indiscernible]. Our online education services business saw growth during Christmas as well primarily contributed by online education projects for the China Banking Association and the Fund Traditional Association [ph]. ATA met its net revenue guidance for the quarter and nine month transition period 2017. Net revenues increased 15.7%, RMB316.4 million in the quarter ended December 31, 2017 from RMB273.5 million in the prior year period. Gross margin for the three months ended December 31, 2017 was 48.6% compared to 50.8% in the prior year period. The decrease was primarily due to increased test monitoring cost as well as increased fixed cost associated with higher share based compensation expense and licensing fees. Our bottom-line for the three months ended December 31, 2017 was impacted by RMB15.2 million impairment charge associated with our one of our investing companies as well as increased consulting fees particularly related to the review and evaluation of the ATA Online acquisition proposal. Given the status of the ATA Online acquisition we will not be providing guidance for 2018first quarter ending March 31, 2018 and the year ending December 31, 2018 at this time. On the next slide we present revenues for the three and nine months ended December 31, 2017. Buyer differences which are testing services, online education services and other revenue. Testing services accounted for about 94.1% of our revenues during the December 31 quarter. On slide 8 and 9 we provide a breakdown of the company's financial results for the three and nine months ended December 31, 2017. As this information has been fully detailed in our earnings release I won't repeat the numbers here but I'm happy to take any questions on this information during the Q&A section. Net income attributable to ATA Inc. for the quarter ended December 31, 2017 was RMB54.1 million compared to RMB75.4 million in the prior year period primarily due to the impairment charge and consulting fees I mentioned earlier. Moving to slide 10, we provide a supplemental charge of quarterly numbers adjusted for share based compensation expense and foreign currency exchange gain or loss. Adjusted net income attributable to ATA Inc. for the quarter ended December 31, 2017 which excludes share based compensation expense and foreign currency exchange gains non-GAAP with RMB58.6 million compared to RMB766.5 million in the prior year period. Basic and diluted earnings per common share attributable to ATA Inc. excluded share based compensation expense and foreign currency exchange gain on the GAAP for the quarter-ended December 31, 2017 where both RMB1.1. Basic and diluted earnings per ATS [ph] attributable ATA Inc. excluding share based compensation expense and currency exchange gain non-GAAP for the quarter ended December 31, 2017 were both RMB2.36 compared to RMB3.34 in the prior year period. Likely [indiscernible] highlights our positive cash flow and solid balance sheet. As of December 31, 2017 ATA's cash and cash equivalent were $39.4 million. Working capital was $34.6 million and total shareholders' equity was $56.1 million compared to $32.3 million [indiscernible] $58 million respectively as of March 31, 2017. This time I will turn it over to Kevin.

Kevin Ma: As Amy discussed at the beginning of this call we continue working closely with several parties owner only remaining cruising stages of the ATA Online sale transition. If the transition is completed ATA will no longer conduct its test and development and the delivery business currently operated by ATA Online. In January of this year we announced the appointments of Jack Huang as the President and the Director of ATA. I'm pleased to have Jack sitting with me on this call today. Jack and I have been working very closely in rigid amounts and we will continue to do so as we look to look at ATA's future [ph]. Jack abodes over the 20 years of experience in international education community and it's a well-respected and a recognized leader in this space. Moving forward Jack will not only work with me on overseeing ATS business and operations but he allows any reserve as a primary points of contact for the investment community. Keep this in mind I would now like to turn it over to Jack to provide some background on our growth strategy for the immediate and long term as well as our outlook for 2018 and the closing remarks.

Jack Huang: Thank you for the kind introduction Kevin. Hello everyone I'm very pleased to be speaking with you today. Picking up where Kevin left off in terms of what to expect following the ATA Online acquisition. ATA will no longer conduct it's casting, development and [indiscernible] business that is operated by ATA Online after the closing of the sale. Instead we plan to leverage our existing competency focus assessment at allocated facilities, capabilities and the strategic opportunities that we have been working on to transform our company into a leading international education service provider. We have been exploring the possibility of using the proceeds received from this transaction to find potential acquisitions within the education sector since I joined ATA in January and we will be sure to provide update on our progress to the investment community as a progress. We intend to focus on three areas. International education services for providing service, services to talents internationally. Second, vocational training [indiscernible] for candidates using international resources and projects and evaluation services for so leaders for sizing and evaluation through content and methodologies. The remaining portion of ATA business after the completion of the transaction includes the following three competency focused assessments and education service businesses which we intend to continue and develop. The assessment tools and the content business in our evaluation services area that currently focuses on the sizing the competencies of K12 students. The [indiscernible] projects in occasional traditional services areas that focuses on the innovation related competency of college students and reset product with the education and research institutes of [indiscernible] University in our international education services area and that focuses on Chinese skills and the competencies on non-native Chinese learners. As previously announced ATA's Board of Directors preliminary use a portion of the proceeds received from the transaction to pay a cash dividend to the shareholders which is to stop there to compliance with the Cayman Islands and the PRC laws. However the timing and the amount of any cash dividend have not been decided and may vary depending on several factors including the transaction, funding need for ATA's remaining business and merger and acquisition plans as well as other unforeseen matters. Our reporting obligations as the SEC's register public company will not be affected as a result of the consumer reason of the transaction. We intend to maintain ATA leading status on the NASDAQ global market and we will continue to work to maximize shareholders interest with a goal to retaining value to our shareholders. As Amy stated we continue to expect the final closing of the transaction to take place in the third quarter of 2018. With that Operator let's open it up for questions.

Operator: [Operator Instructions]. There is one question from [indiscernible].

Unidentified Analyst: All right I do have a couple of questions about the transactions in relation to the sales of the ATA Online. The first one would be we will like to know the rationals behind the transaction, why the management has decided to having the ATA online sold. Is it the management cannot see any prospect of the growth of the ATA online or are there are some other reasons. The second question would be in relation to the possible the dividend payment. We know the consideration is $200 million and I was wondering if the company's and the management or the Board of Directors would consider to pay out of the dividends out of the proceeds from transactions and what is the payment ratio is going to be and we also understand the transactions will develop into three closings, well whether the we would like to know whether the company would the Board of Directors will consider to payout the dividends upon each closing or upon the completion of each closing or we will have to wait until all three closings to be completed in order to declare dividends. That’s all I want to know. Thanks.

Carolyne Sohn: Maybe I will go ahead and answer the second question about the dividend payouts. As we previously announced the company intends to use the proceeds received from the transaction to fund one or more of the following terms which includes potential mergers and acquisition targets in the education sector. The development and expansion of ATA's remained business in assessment contents and instruments developments in K12 and higher education areas and also support our existing project which includes the [indiscernible] with education and research institute of [indiscernible] University and dividends to the shareholders. However the Board preliminary to use the portion of the proceeds received from the transition to pay a cash dividend to the shareholders but which is compliance to the Cayman Islands and PRC Laws but the timing and amount of cash dividend has not been decided yet and in may vary depending on several factors including the progress of the transition the funding these for ATA's remaining businesses and also the mergers and acquisition plan as well as other unforeseen matters. Did you understand that it is our responsibility to pursue the best return on this capital to our investments long term and we will certainly provide an updates on this matter as soon as predictable. I'm not sure if I've answered your question.

Operator: [Operator Instructions]. Okay we have a question from [indiscernible].

Unidentified Analyst: I'm sorry its me again, I've got two more follow-up questions based on the answers thus given by the management. The first one would be, will the company make announcement based on each completion of the closings, it just simply keep us informed of the progress of the transaction. While the actually that’s the only questions I've. The second one would be do especially to Amy, do you have the idea of how much of tax we have to pay is payable for such transaction while I understand that the structure of that transactions rather complicated some would be the selling of the offshore shares of the holding companies and part of the transaction is selling the onshore company's shares. So I would like to know roughly what is the interest adding tax payables subject to applicable to this particular transaction. Thanks.

Amy Tung: The progress of the transaction we will definitely keep the investors informed about the progress as we move on and do appropriate discussions where needed. About the cash to pay, for the moment as I've mentioned earlier where the Board, even though we have been announcing that the dividend we will be having a dividend for the investors but it will still depend on the cash needs of the company and we yet have to discuss on the amount and timing for the dividend payout. For the cash itself the cash consideration of this deal is $200 million in total but as also mentioned there will be three closings important and each closing will have certain amount of test payout which we estimated to be about $30 million for the test.

Operator: Ladies and gentlemen the question and answer session is now closed. Handing back to the management. You may proceed.

Kevin Ma: Thank you again to allow of you for joining us, if anyone has questions for us please feel free to reach out directly to us or our investor relation firm. We look forward to speaking with you all again during our next quarterly report. As always we welcome any visitors to our office in Beijing. Thank you. And thank you operator.

Operator: Thank you the speakers. Ladies and gentlemen this now concludes your conference call for today. You may now disconnect. Thank you for joining. Have a very good day.