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Edited Transcript of ATAI earnings conference call or presentation 15-Aug-19 1:00am GMT

Q2 2019 ATA Inc Earnings Call

BEIJING Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of ATA Inc earnings conference call or presentation Thursday, August 15, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Amy Tung

ATA Inc. - CFO

* Jun Zhang

ATA Inc. - President & Director

* Xiaofeng Ma

ATA Inc. - Co-Founder, Chairman & CEO

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Conference Call Participants

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* Carolyne Y. Sohn

Fincera Inc. - IR, The Equity Group Inc.

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Presentation

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Operator [1]

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Good day, and welcome everyone to the ATA Inc. 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. (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.

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Carolyne Y. Sohn, Fincera Inc. - IR, The Equity Group Inc. [2]

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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 also 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 RMB 6.8650 to USD 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 accompanying 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 to 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 the discussion of ATA's acquisition of ACG, which closed on August 6, 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.

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Amy Tung, ATA Inc. - CFO [3]

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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 our financial results for the second quarter of 2019 shown on Slide 5. Net revenues for the period increased to RMB 1.4 million compared to 0 in the second quarter of 2018 as a result of our success in developing our K-12 education quality monitoring services in China's Shanxi province. Net loss from continuing operations attributable to ATA Inc. 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 0.5 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 USD 19.2 million in cash and cash equivalents 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 presents 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 USD 23.4 million and total shareholders' equity was USD 36.3 million at June 30, 2019, compared to USD 28.2 million and USD 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 activities.

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Xiaofeng Ma, ATA Inc. - Co-Founder, Chairman & CEO [4]

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Thank you, Amy. For those of you following along, I will begin with Slide 8. As we have stated in past calls, we are steadily growing international education market where ATA has been [hurtling] its focus. China is the #1 market for students studying internationally. And as shown on this slide, the number of Chinese students pursuing overseas study continues to grow each year with over 662,000 students studying abroad in 2018.

We are thrilled to have recently announced the closing of ATA's acquisition of approximately 87% equity interest in ACG. We are working to close on the remaining 12-or-so percent equity interest and expect to have this completed before the end of the third quarter. Details surrounding the close 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 transition is our first major step forward toward our long-term objective of becoming a leading international education service provider. We look forward to working closely with the ACG team on taking advantage of the rapidly growing art education market.

We can find an overview of ACG on Slide 10.

To discuss the details of ACG's structure and initiatives, I'd like to introduce Mr. Jun Zhang, ACG's newly appointed President and Director. Jun is the founder of ACG and has led the organization since its establishment. Jun boasts over 20 years of experience in art education and is a recognized expert in China's art education industry. He is a pioneer 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 strategic growth initiatives. Jun will make his remarks in Mandarin, which will be followed by an English translation.

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Jun Zhang, ATA Inc. - President & Director [5]

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(foreign language)

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Carolyne Y. Sohn, Fincera Inc. - IR, The Equity Group Inc. [6]

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[Interpreted] Thank you, Kevin, for that kind 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 4 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 age groups. Third, we expect our business models 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. We look forward to providing the investment community with updates on our progress on these initiatives in the coming months and sharing more details surrounding our operations and economics. Kevin?

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Xiaofeng Ma, ATA Inc. - Co-Founder, Chairman & CEO [7]

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Thanks for that, Jun and Carolyne. In closing, we are very excited to have acquired ACG and about the initiatives in place to grow ACG's market share in the rapidly growing art education market. We look forward to utilizing our strong background in education technologies and service as well as our industry relationships to drive forward the company's geographic and programmatic expansion.

ACG's overall objective and growth strategy is outlined on Slide 11. And as we will close with ACG, we can hence 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 U.S. later this year and look forward to visiting with investors.

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

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Operator [8]

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(Operator Instructions)

There are no questions in the queue.

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Xiaofeng Ma, ATA Inc. - Co-Founder, Chairman & CEO [9]

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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 or -- during our next quarterly call, and as always, welcome analysts to our office in Beijing. Thank you.

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Operator [10]

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]