ATA, Inc. (ATAI) CEO Kevin Ma on Q2 2019 Results - Earnings Call Transcript

Aug. 14, 2019 10:48 PM ETATA Creativity Global (AACG)
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ATA Inc. (ATAI) Q2 2019 Earnings Conference Call August 14, 2019 9:00 PM ET

Company Participants

Carolyne Sohn - The Equity Group, IR

Amy Tung - CFO

Kevin Ma - Chairman & CEO

Jun Zhang - President

Conference Call Participants

Operator

Good day and welcome everyone to the ATA Incorporated 2019 Second Quarter Financial Results Conference Call hosted by Carolyne Sohn of The Equity Group.

My name is Chris and I'm your event manager today. During the presentation your lines will remain on listen only. [Operator Instructions] I would also like to advise all parties that this conference call is being recorded.

And now I'd like to pass the call over to Carolyne. Please go ahead.

Carolyne Sohn

Thank you, Chris and hello everyone. Thank you for joining us. The press release announcing ATA's results for the second quarter ended June 30, 2019, is available at the IR section of the company's website at www.atai.net.cn. As part of this conference call, the company has an accompanying slide presentation available on the website. A replay of this broadcast will also 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 like to refer you to 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 second quarter ended June 30, 2019, are converted from RMB using an exchange rate of RMB6.8650 to $1, the noon buying rate as of June 30, 2019. 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 company PowerPoint presentation, there is an overview of the company on Slide 3. In addition, we are more than happy to take investor questions through our webcast portal or via e-mail for the company.

On today's call, the company's CFO, Ms. Amy Tung will provide a brief overview of financial highlights for the second quarter of 2019. And then ATA's Chairman and CEO, Mr. Kevin Ma; and newly appointed President, Mr. Jun Zhang, will conclude the remarks with a brief discussion on ATA's acquisition of ACG, which closed on August 6th, the company's outlook and long-term growth strategy, 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. Good evening to those in America. We appreciate everyone's time. To those of you following along with the presentation, I will provide a brief summary of financial highlights for the second quarter of 2019 shown on Slide 5.

Net revenues for the period increased to RMB 1.4 million compared to RMB 1 million in the second quarter of 2018 as a result of our success in developing our K-12 education quality monitoring services China in Tianjin province. Net loss from continuing operations attributable to ATA was RMB 18.2 million, compared to RMB 16.4 million in the prior year period, primarily due to an RMB 1.1 million decrease in net rental income and RMB 2.5 million increase in legal and consulting fees associated with the acquisition activities of new business.

Lastly, we continue to be in a strong financial position with US$19.2 million in cash and cash equivalent and no long term or short term debt at June 30 2019.

We provide additional detail on our capital position and balance sheet on Slide 6. Please note that the information shown here is preset the closing of the ACG acquisition, which will be reflected in our balance sheet at the end of this current quarter ending September 30 2019.

Working capital was US$23.4 million and total shareholders' equity was US$36.3 million at June 30 2019 compared to US$28.2 million and US$40.2 million respectively as of December 31 2018.

I would now like to turn it over to Kevin who will make some remarks about M&A equity.

Kevin Ma

Thank you, Amy. For those of you following along, I will begin with Slide 8. As we have stated in past quarters the steep growing international education market is where ATA has been courting its focus.

China is the number one market of students studying internationally. And as a shown on this slide, the number of Chinese students pursuing overseas studies continues to grow each year with over 662,000 students studying abroad in 2018. We are thrilled to have real detail as to the closing ATA's acquisition of approximately 87% to equity interest in ACG. We are working to close on the remaining 12% or so equity interest and expect to have this completed before the end of the third quarter.

Details surrounding the terms can be found in last week's press release. And we are happy to answer questions during Q&A as well.

Moving to Slide 9, this transaction is our first step towards our long term objective of becoming a leading international education service provider. We look forward to working closely with ACG team on taking advantage of their reputable degree of education market. We can find the overview of ACG on Slide 10.

To discuss the details of ACG's structure, initiatives, I'd like to introduce Mr. Jun Zhang, ATA's newly appointed President and Director. Jun is the founder of ACG and has leaded the organization success. Jun holds over 20 years of experience in art education and is a recognized expert in China's art education industry. He is a panel in the industrialization of international art education in China and has been very involved with the arts in China both professionally and as an educator.

With that, I'd like to turn it over to Jun to expand upon ACG's strategy growth initiatives. Jun will make his remarks in Mandarin, which will be followed by an English translation.

Jun Zhang

Thank you, Kevin for that time introduction. I am very pleased to be joining ATA at this exciting juncture in both of our companies' history. As you can see on Slide 9, we have four major growth initiatives. The first is rather simple, geographic growth. We are working to maximize the growth of our existing centers in China and plan to selectively open centers in China and overseas in the years to come. So we may provide our students with additional programming and tailored services such as language education.

Second is product expansion. We are looking to introduce themed art tour and research products for niche market clients, as well as programming for students of different ages group.

Third, we expect our business model to evolve to accommodate and catalyze growth domestically. Our current products cater to those living in first and second tier cities. But as we expand our product offerings and sales channels, we aim to gradually expand our reach to more second and third tier cities. We believe doing so will lead to progressively increased market share.

Finally, we continue looking for M&A opportunities and partnerships within the art education market, both domestic and overseas. We believe successful acquisitions or partnerships further enhance our growth and value as we move forward with our other growth initiatives. And look forward to providing the investment communities with updates on our progress on these initiatives in the coming months and sharing more details surrounding our operations and economics. Kevin?

Kevin Ma

Thanks for that Jun. Including We are very excited to have part ACG about the initiative in place to grow ACG's market share in the rapid growing education market. We look forward to utilizing our strong background in education technologies and service as well as our industry relationships to go forward the components, the geography and the programmatic expansion.

ATA's overall objective in a growth strategy is outlined on Slide 11. And as we will close with ACG, we continue to explore M&A opportunities within the education space that may be a good fit with our business portfolio. We have plans to be in the US later this year. And look forward to visiting with investors.

With that, operator, let's open it up for questions.

Question-And-Answer Session

Operator

Operator

There are no questions in the queue. Thank you so much.

Kevin Ma

Thanks again to all of you for joining us. If anyone has questions for us, please feel free to reach out directly to us or our investor relations firm, The Equity Group. We look forward to speaking with you during our next quarterly call. And as always welcome any investors to our office in Beijing. Thank you.

Operator

Thank you so much. Everyone, that concludes our conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.

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