ATA Creativity Global
Q2 2015 Earnings Call Transcript

Published: 11 Nov 2014

[Operator:]

Good day ladies and gentleman and welcome to the ATA Financial Results Fiscal Year 2015 Second Quarter and six months Conference Call. My name is [indiscernible] and I will be your operator for today. At this time all participants are on a listen only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions). I’d also like to remind all participants this conference is being recorded. Now I’d like to turn the call over to Mr. Adam Prior of the Equity Group. Please go ahead sir.

[Adam Prior:]

Thank you, and good morning, everyone. Thank you for joining us. Copies of the press release announcing ATA’s fiscal 2015 second quarter results are available at the IR section of the Company’s website at www.ata.net.cn. As part of this conference call, the Company has an accompanying slide presentation available on its website. You are also welcome to contact our office at 212-836-9600 and we would be happy to send you a copy. 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'd 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 Slide 2 of the conference call presentation for further information. All dollar amounts in this conference call relating to financial results for the Company’s most recent quarter ended September, 30, 2014 are converted from RMB using an exchange rate of RMB6.1 to RMB6.1380 to $1. All historical conversions are accurate as of the time reported unless otherwise noted. The Company reports its financial results under 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. The Company’s CFO Mr. Benson Tsang will provide an overview of operational and financial highlights for second quarter 2015 beginning with Slide 4. The Company’s Chairman and CEO, Mr. Kevin Ma, will then discuss ATA’s outlook and growth strategy for the remainder of fiscal year 2015, before opening the floor for questions. With that I’ll turn the call over to ATA’s CFO Mr. Benson Tsang. Please go ahead Benson.

[Benson Tsang:]

Thank you, Adam, and good morning, everyone. Today I will provide an overview of our operating and financial highlights for second quarter 2015 and then proceed discuss our outlook for fiscal year 2015 and beyond. I would like to begin on Slide 5, which lists some of our operating highlights. During second quarter 2015 we delivered approximately RMB3 million [indiscernible] over RMB1.6 million of bills refer to CPA Exams, which is successfully delivered for the third consecutive year using ATA technologies. ATA continues to focus on creating new and innovative technologies and partnerships to help bring consumers and education client held together. We continue to make process on both consumer focus initiatives, such as the joint venture with New Oriental. The name of the new JV Company is Beijing [indiscernible] Education Technology Company Limited. Both ATA and New Oriental have received funds to the new company and we continue working closely with New Oriental on forming a strong leadership team. The Board of Directors have deformed and our transitional management team for the KV Company consisting primarily of members of New Oriental's experience online business team are preparing a business trend of dealing [indiscernible]. We expect the online carrier education and training web page, learning management system to be ready by early 2015 and our goal is to grow this platform into the largest online carrier education resource in China in three to five years. In June ATA introduced its own mobile application called Kao Shi Dao Hang or Exam Inventory Navigator in English. We released an update to the app in August, which include new content such as test information for various exam software and increased functionality. Users can now visualize the exam process with the timeline detailing its [indiscernible] from exam preparation to delivery to the results being issued. The update also allows uses to customize their subscriptions for receiving new information and the [indiscernible] third-party platforms, including QQ, Weibo and Renren. We were pleased to approach a number of activated users from approximately 60,000 at the end of first quarter 2015 to approximately 400,000 at the end of second quarter 2015. Our goal is to continue to drive functionality through the app, and ultimately transition wide base of active users to utilize ATA’s IT infrastructure to better themselves and ultimately enhance our Company’s profit potential. Finally, we recently announced a new partnership with Master Mind Education, a provider of digitized services to K-12 after school tutoring institutions in China. First ATA has been chosen by Master Mind to be the provider of equipment, service and support for its MTS technology, which will enable instructors within the Master Mind network to use the MTS box and technology to exanimate [ph] educational content wirelessly. An initial order of 2,500 MTS boxes has been placed by Master Mind of which 500 has been delivered. The rest is expected to be delivered in the coming weeks. As we go delve into Master Mind, we realize we have come upon an exciting opportunity that will allow ATA to expand within the K-12 space. As a result, ATA also entered into an agreement to make a strategic investment of $5 million in Master Mind, representing a 33% stake in the company. We believe that both companies will mutually benefit from combining our expertise in assessment in training technologies with Master Mind’s knowledge of China’s after school tutoring market and established network of K-12 after school tutoring institutions after we expand upon this partnership and our growth strategies later on during the call. Our [indiscernible] base present opportunity to leverage ATA’s strong balance sheet and create value in the long-term. On the right-hand side of the presentation is a map of our extensive nationwide network of over 3,000 test centers, which enables ATA to deliver large scale exams simultaneously and cost effectively for our clients. We believe we are the only provider of this kind of large scale testing solution in China. Moving on to our financial highlights for the quarter as shown on Slide 6. We exhibit our net revenue guidance for second quarter 2015. Net revenues for the quarter continued to be impacted by the termination of the exclusive distributor contracts between ETS and ATA for TOEIC and its related products in fiscal 2014, but the effect will offset by revenues from the CPA exam, which separate in second quarter 2015 versus third quarter 2014. The exam had historically taken place in the second quarter in past years, while given this transition from a paper based format to computer-based testing of delayed in fiscal years 2013 and 2014. Gross margin in second quarter 2015 was impacted by the change in timing of the CPA exam, which has a slightly lower margin than those of ATA exams. Lastly, in regards to guidance, we are maintaining our net revenue and long debt net income guidance for fiscal year 2015 at this time. However, due to prolonged contract negotiations with perspective and existing clients in our traditional [tax] improvements caused by changes in the political environments, we continue to face uncertainty in the short-term. While we cannot determine the exact timing of when certain [indiscernible] exams will be scheduled, we know the long-term profit trends transitioning to a computer based testing has not changed. In addition, we are ramping up our growth strategies that will still to be vital to ATA’s growth and development, and Kevin will touch on that later. On the next slide, we break out revenues for second quarter 2015 by our businesses, which can be broken down broadly into two areas

[Kevin Ma:]

Thank you, Benson. It’s an exciting time in ATA’s history. Since I cofounded the Company in 1999, we have seen technology began increasing [indiscernible] as a tool to reach to very beginning and as said the further [indiscernible] level. ATA has worked hard adapting to a changing market. We began pricing in relationship with government bodies that needed effective and experienced third-parties to capital and [indiscernible] larger skill assessment and certification exams. Today we have worked with a number of government associations for over 10 years and continue to view that trend and extending those relationships. A period ago we extended our core competence of testing service to corporate clients, presenting [indiscernible] make the most suitable choice for new hire and be able to approach and to incentivize and also productive employees of their firms. Today, we are proud to be working with many globally recognized customers in a range of industries such as HSBC Beijing, [indiscernible] Insurers and [indiscernible] high tech. In fiscal year 2015, we continue to serve our government and corporate clients. But as Benson just mentioned, we have experienced longer than expected contract negotiations as a result of our current difficult environment, which may impact our outlook for the fiscal year. Our fiscal year 2015 marks yet another step [indiscernible] and we are hoping our new initiatives use on the consumer which you can see on Slide 14 of the presentation. ATA’s mobile application Exam Event Inventory Navigator is while reduce initiatives and we are very pleased with the initial restructuring. We hope to continue making this tool increasingly useful to our user. As we previously shared we firmly believe being a structure that believes in strong partnership with different industrial leaders, ATA’s expertise in testing technologies and start to finish procedures as we tabled to a number of different sectors and we continue to explore opportunities for collaboration. In this regard we continue working closely with New Oriental on the joint event that we allow in July. Secondary name has been decided and the current leadership team is working on their business trends while [indiscernible] on new online carrier education and a training platform for working professionals in China, which we’ll expected to launched to the healthcare, accounting and the financial industry we already too South in the city. Earlier in the call Benson also mentioned our resistant allowance to partnership for which a strategic investment in marked demand education which marks ATA’s expansion in the K-12 education space in China. Given our years of experience including working professionals, [indiscernible] the K-12 education space for the natural expansion where ATA curtain fulfilled a lead. We are excited to work with a team at Master Mind on antiquating ATA’s and NTS technology into their digitization for K-12 office school to tutorial and look forward close collaboration in penetrating our integrated testing capability into Master Mind's network of after school tutoring institutions as its goes. I would like to slide through all of since the initiatives that we have adjusted inventory, [indiscernible]. We work with foreign language teaching and resource points which right of the last in language and unit test book publishers in China. ATA have to digitalize exercise collective test and exam lashing [ph] for select English syllabus and text books of right answer. This will provide continuous test and a timely assessment of each student to cover us and eventually it has a learning capabilities. The initiative will provide ATA a channel to entering the K-12 and to the English training and testing market. In mid-October we successfully organized and filled efforts to come to the test for new concepts of test of English in to China series using ATA NTS technology. Second we are exploring business corporation with a LinkedIn China. We are providing a self-assessment at all Marcellus which helps its members to pay asset there carrier choice. This in turn will help members plan their carrier. Marcellus [ph] is going to be offered to all LinkedIn China members through its website. Marcellus is a professional office mentor, he worked and owned the prior ordered renewed far more conservative. ATA has worked with Marcellus for several years and has exclusive right to distribution and the use of this hope in China. We are excited that its potential opportunity extend ATA’s contribution and the process in the human resources market. As we focus on exploring consumer with our new initiatives, ATA is mindful of the power of information. As you saw on Slide 18 we believe that collecting and navigating and acting on the information just to show where we're at valuable tool not only for ATA but for our partners and consumers themselves. For example a teacher come base trapped and understand a severance for growth if he as we watch a time and of student have completed, how will the student answer the content that they're on assessment and so on. Based on this, information additional tutoring may be recommended in subject areas that students appear to struggle with that some logic can be applied to our raising the courage of graduates looking for jobs and currently looking to advance in their career. We continue to be in earlier stage of executing on our new group structure and are pleased with our progress thus far. We look forward to shining more details on this issue with the investment community over the next few months. With that operator let's open it up for questions.

[Operator:]

Thank you, sir. (Operator Instructions) So we have no questions in the queue. (Operator Instructions) Thank you. We have no questions in the queue. And now I would like to turn the call over to Mr. Kevin Margin for closing remarks. Please go ahead, sir.

[Kevin Ma:]

Thanks again to all of you for joining us. If anyone has question for us, please feel free to reach up to Benson or myself, as well as our Investor Relations firm The Equity Group. We look forward to speaking with you again during our third quarter 2015 financial results call. And as always we welcome any investors to our office in Beijing. Thank you.

[Operator:]

Thank you. Ladies and gentlemen that concludes the conference call for today. You may disconnect. Thank you for joining. Have a very good day.