ATA Inc. Form 20-F Summary
Reporting period: Fiscal year ended March 31, 2013, with comparative fiscal years ended March 31, 2012 and March 31, 2011. The source filing is not a standalone 2012 fourth-quarter filing. ATA Inc., a Cayman Islands company listed on Nasdaq under ATAI, provides computer-based testing, test preparation and training, employee assessment, and related education services primarily in China. The company reports under U.S. GAAP.
Business Context
- Testing services represented 91.6% of fiscal 2013 revenue, compared with 82.6% in fiscal 2012.
- The company delivered 9.27 million tests in fiscal 2013, including 8.74 million billable tests, versus 8.53 million total tests and 8.03 million billable tests in fiscal 2012.
- ATA operated through 2,804 authorized test centers and had 500 employees at March 31, 2013.
- The Securities Association of China, China Banking Association, and Chinese Institute of Certified Public Accountants represented 23.0%, 16.5%, and 14.8% of fiscal 2013 revenue, respectively. The five largest testing-services clients represented 65.0% of total revenue.
Key Financial Metrics
| RMB millions, except percentages | FY2012 | FY2013 | Change |
|---|---|---|---|
| Total net revenue | 352.1 | 366.7 | +4.1% |
| Testing services revenue | 290.9 | 335.8 | +15.4% |
| Test preparation and training revenue | 27.0 | 11.3 | -58.0% |
| Other revenue | 34.2 | 19.5 | -42.9% |
| Gross profit | 193.3 | 177.8 | -8.0% |
| Gross margin | 54.9% | 48.5% | -6.4 percentage points |
| Operating income | 64.5 | 27.0 | -58.1% |
| Operating margin | 18.3% | 7.3% | -11.0 percentage points |
| Net income | 55.8 | 23.2 | -58.4% |
| Net margin | 15.8% | 6.3% | -9.5 percentage points |
| Operating cash flow | 59.4 | 67.8 | +14.2% |
- Fiscal 2013 revenue was approximately US$59.0 million and net income was approximately US$3.7 million using the filing’s exchange rate.
- Cash increased to RMB290.0 million from RMB257.2 million. Accounts receivable declined to RMB51.1 million from RMB81.8 million, while the allowance for doubtful accounts increased to RMB35.0 million from RMB30.1 million.
- Total assets were RMB457.8 million and total liabilities were RMB82.3 million at March 31, 2013. The filing reports no outstanding debt, debt securities, contingent liabilities, mortgages, or liens.
- Capital expenditures were RMB8.0 million, primarily for a Chengdu test center and Beijing data-center infrastructure. Contractual operating lease obligations totaled RMB10.2 million.
- Net cash used in financing activities was RMB26.6 million, primarily reflecting a special cash dividend of approximately US$4.0 million. The company repurchased 26,440 common shares during fiscal 2013.
Material Changes Versus Fiscal 2012
- Testing-services growth was driven by newly added Chinese Institute of Certified Public Accountants examinations and higher China Banking Association volumes. CBA revenue increased from RMB35.0 million to RMB60.6 million.
- Securities Association of China and China Futures Association volumes declined because of reduced demand for securities professionals amid weakness in China’s stock market. SAC revenue declined by RMB33.8 million.
- Test preparation revenue fell primarily because SAC changed its online-training arrangement from a per-training-hour model to a fixed annual fee and was evaluating whether to operate the program internally. ATA expects no further SAC test-preparation revenue after completing approximately RMB1.0 million of data-transfer services.
- Other revenue declined as ATA continued exiting test-based education and certificate-delivery businesses.
- Gross margin contracted because of lower SAC exam volumes, reduced SAC online-training revenue, and implementation expenses associated with CICPA examinations.
- Operating expenses rose 17.1% to RMB150.8 million. General and administrative expense included approximately RMB5.5 million of headcount-reduction costs, and bad-debt expense increased to RMB9.1 million from RMB2.4 million.
- Revenue from HR Select and TOEIC services remained broadly stable at RMB88.4 million, compared with RMB88.0 million in fiscal 2012.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that existing cash and expected operating cash flow should fund working capital and capital expenditures for the next 12 months and the foreseeable future. No formal revenue or earnings guidance is provided in the filing.
- Revenue is seasonal: testing revenue is generally higher in the quarters ending June 30 and December 31 and lower in the quarters ending September 30 and March 31. Fiscal 2013 quarterly revenue was RMB46.8 million in the September 2012 quarter and RMB179.4 million in the December 2012 quarter.
- Approximately 67.3% of fiscal 2013 revenue came from Chinese government-controlled entities, making results sensitive to government budgets, policies, funding, and procurement cycles.
- ATA relies on contractual arrangements with ATA Online, a PRC variable-interest entity that ATA does not legally own but consolidates under U.S. GAAP. Regulatory action or failure to enforce these agreements could require deconsolidation and materially reduce reported assets, liabilities, revenue, income, and cash flow.
- Key risks include customer concentration, technology or data-security failures, competition, dependence on major test sponsors and key personnel, PRC foreign-exchange restrictions, tax-policy changes, and uncertainty surrounding PRC regulation of Internet content and education services.
- ATA retained preferential 15% enterprise income tax treatment for certain PRC entities, subject to qualification requirements. It had not provided tax for RMB142.5 million of indefinitely reinvested PRC earnings; the related unrecognized deferred tax liability was RMB14.2 million.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that internal control was effective as of March 31, 2013.
- The filing states that no litigation, arbitration, or administrative proceeding was then expected to have a material adverse effect.
Most Important Facts to Verify
- Whether SAC and other major sponsors renew contracts and whether the loss of SAC online-training revenue is fully offset by testing-services growth.
- Collection of concentrated receivables, particularly the RMB19.6 million due from SAC and the RMB7.9 million due from China Customs Education and Training Center.
- Sustainability of the 48.5% gross margin after CICPA implementation costs and the shift toward lower- or higher-margin services.
- Continuation of HR Select, TOEIC, ACT, and Cambridge distribution arrangements and their contribution to future growth.
- Compliance and enforceability of the ATA Online VIE structure under evolving PRC Internet, education, foreign-investment, and foreign-exchange rules.
- Renewal of preferential HNTE tax certificates and potential withholding tax on distributions from PRC subsidiaries.
- Cash availability at the parent company versus cash held by PRC subsidiaries and the restrictions on transferring funds offshore.