China Education IPO: ATA Inc.

Jan.28.08 | About: ATA Inc. (ATAI)

ATA Inc. (NASDAQ:ATAI) is a leading provider of computer based testing services in China. The company plans to float a public offering this week.

All quotations are from the company's most recent F-1 filing with links provided.

Business Overview (from prospectus)

We are the leading provider of computer-based testing services in China, with the largest market share, 30.9%, in terms of revenue in 2006, according to IDC. We also provide career-oriented, test-based educational programs and test preparation solutions in China. To comply with PRC law, we operate the online portion of our test preparation solutions business through a series of contractual arrangements with ATA Online (Beijing) Education Technology Limited, or ATA Online, a PRC entity owned by two of our founders and over which we do not have direct control or direct oversight. Our clients include professional associations, such as the China Banking Association and the Securities Association of China, which accounted for 19.5% and 4.2%, respectively, of our net revenues for the six months ended September 30, 2007, Chinese governmental agencies, including the PRC Ministry of Labor, which accounted for 8.5% of our net revenues for the same period, well-known IT vendors, Chinese educational institutions, distributors of our test preparation software products, and individual test preparation services consumers. During the six months ended September 30, 2007, approximately two million tests were delivered using our computer-based testing technologies and services.

Offering: 4.9 million shares at $9.50 - $11.50 per share. Net proceeds of approximately $43.8 million will be used to develop and expand test preparation solutions business; to license course content from IT vendors to expand degree major and single course program offerings; for marketing costs related to enhancing “ATA” brand; and for working capital and general corporate purposes.

Lead Underwriters: Merrill Lynch, Piper Jaffray

Financial Highlights:

Our total net revenues increased by RMB43.9 million, or 135.6%, to RMB76.2 million ($10.2 million) in the six months ended September 30, 2007 from RMB32.4 million in the six months ended September 30, 2006... Our gross profit increased by RMB29.9 million to RMB43.5 million ($5.8 million) in the six months ended September 30, 2007 from RMB13.6 million in the six months ended September 30, 2006. Our gross margin increased to 57.0% in the six months ended September 30, 2007 from 42.1% in the six months ended September 30, 2006... Our operating expenses increased by RMB7.5 million, or 27.8%, to RMB34.7 million ($4.6 million) in the six months ended September 30, 2007 from RMB27.2 million in the six months ended September 30, 2006, primarily resulting from a substantial increase in our general and administrative expenses... As a result of the above factors, we had net income of RMB8.5 million ($1.1 million) in the six months ended September 30, 2007 as compared to a net loss of RMB11.9 million in the six months ended September 30, 2006.


In relation to computer-based testing services, we compete with domestic Chinese and international computer-based testing service providers. Prometric and Pearson VUE (NYSE:PSO) are our main competitors in China. We compete with them primarily based on technology, price, management experience and established infrastructure. We believe our overall testing services and technologies compare favorably with the services and technologies offered by these competitors. Moreover, we believe that our nationwide test center network and test delivery platform provides us with a significant competitive advantage over these two competitors. We believe we are currently the market leader in computer-based testing services in China due to the combination of our experience in and familiarity with the China computer-based testing services market, our advanced technology, our large nationwide network of test centers, our established relationships with key test sponsors and governmental agencies and our competitive cost levels.

In relation to our career-oriented educational services, we face competition from international companies, such as Aptech Limited and NIIT Limited. Aptech Limited operates in China primarily through its joint venture with BeiDa Jade Bird. Although these two companies offer IT-related courses to post-secondary educational institutions in China, based on our market experience and client communications we believe they do not directly compete with our products and services. For example, these two companies design their own course content and exams and provide passing students with their own proprietary certifications, rather than offering course content and certifications designed by well-known IT vendors, as we do. Other than the joint venture between Aptech Limited and BeiDa Jade Bird, we are not aware of any domestic Chinese company that offers educational services similar to or competitive with our career-oriented educational services. As a result, we have to date experienced little pricing pressure due to competition, although we do feel some pressure to maintain a pricing level for our educational services that is affordable for vocational schools that ultimately need to pass such costs on to students in the form of tuition and course fees. This may prevent us from raising prices for our education services significantly in the short term.

Traditional Chinese test preparation material providers, such as publishing companies, indirectly compete with our test preparation solutions. However, we are not aware of any significant competitors in China in the online test preparation solutions business. In relation to our simulation technologies, there are a few U.S.-based companies providing performance-based testing technologies, including Certiport, Inc.

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