ATA Inc. Form 20-F Summary
Reporting period: Fiscal year ended March 31, 2012, with audited comparisons for fiscal years ended March 31, 2010 and 2011. The source filing is an annual report, not a quarterly filing; it does not provide a clear standalone “2011 Q4” reporting period. The registrant is identified in the filing as ATA Inc., with ADSs listed on Nasdaq under ATAI.
Business context
ATA provides computer-based testing, test preparation and training, employee assessment, test content creation, and related education services primarily in China. Its network included 2,462 authorized test centers as of March 31, 2012. The company consolidates ATA Online, a PRC variable-interest entity operated through contractual arrangements because of foreign-ownership restrictions on Internet content businesses.
Key financial metrics
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Net revenues | RMB352.1 million | RMB303.9 million | Up 15.9% |
| Testing services revenue | RMB290.9 million | RMB243.1 million | Up 19.7% |
| Test preparation and training revenue | RMB27.0 million | RMB15.4 million | Up 75.0% |
| Other revenue | RMB34.2 million | RMB45.4 million | Down 24.6% |
| Gross profit | RMB193.3 million | RMB154.7 million | Up 24.9% |
| Gross margin | 54.9% | 50.9% | Up 4.0 percentage points |
| Operating income | RMB64.5 million | RMB20.9 million | Up 208.7% |
| Net income | RMB55.8 million | RMB19.8 million | Up 182.7% |
| Basic EPS | RMB1.22 | RMB0.44 | Up from prior year |
| Net cash from operations | RMB59.4 million | RMB62.1 million | Down 4.4% |
| Cash balance | RMB257.2 million | RMB268.1 million | Down RMB10.9 million |
| Total liabilities | RMB94.3 million | RMB71.4 million | Up RMB22.9 million |
U.S. dollar translations use RMB6.2975 per US$1. FY2012 revenue was reported as US$55.9 million, gross profit as US$30.7 million, net income as US$8.9 million, cash as US$40.8 million, and operating cash flow as US$9.4 million.
Material changes versus the prior comparable period
- Revenue growth was driven by higher exam volume and pricing for the Securities Association of China, the addition of the China Customs exam, and growth in HR Select and TOEIC. Billable tests increased to 8.0 million from 6.9 million.
- HR Select and TOEIC revenue increased to RMB88.0 million from RMB54.5 million, a 61.3% increase.
- Gross margin expanded primarily because of increased online training revenue and higher unit pricing for SAC exams.
- Operating expenses declined 3.7% to RMB128.8 million. Research and development and sales and marketing expenses decreased, while general and administrative expense rose 13.3%, primarily because of higher share-based compensation.
- Other revenue declined as the company continued its gradual exit from career-oriented and test-based educational services.
- Accounts receivable increased to RMB81.8 million from RMB47.1 million; the allowance for doubtful accounts increased to RMB30.1 million from RMB27.9 million.
- The company paid a special cash dividend of US$0.215 per common share, or US$0.43 per ADS, totaling approximately US$9.8 million, or RMB63.6 million.
Liquidity, debt and cash flow
- Cash at March 31, 2012 was RMB257.2 million. The filing states that current cash and expected operating cash flow should fund working capital and capital expenditures for the foreseeable future.
- Operating cash flow was RMB59.4 million, compared with RMB62.1 million in FY2011. The company collected RMB322.6 million from revenues and paid RMB102.7 million for test monitoring and royalties, RMB143.5 million for payroll and other operating expenses, and RMB17.0 million for income taxes.
- Investing cash outflow was RMB5.3 million, primarily for computers and electronic equipment. Capital expenditures were RMB5.4 million.
- Financing cash outflow was RMB62.0 million, primarily reflecting the special dividend.
- The company reported no outstanding debt, debt securities, contingent liabilities, mortgages or liens. Operating lease obligations totaled RMB10.2 million, including RMB6.1 million due within one year.
- Liquidity is subject to PRC foreign-exchange controls, restrictions on transfers from PRC subsidiaries, and the need to retain RMB10.6 million in statutory reserves as of March 31, 2012.
Guidance, outlook, risks and unusual items
- Management expected testing services to remain the largest revenue source and planned continued investment in HR Select, TOEIC, technology upgrades and sales and marketing.
- The SAC was evaluating whether to operate its online training program internally. ATA expected approximately RMB7.8 million of SAC test-preparation revenue in the fiscal year ending March 31, 2013, versus RMB21.1 million in FY2012. After March 2013, the company expected to lose this outsourced service revenue if SAC did not resume outsourcing.
- Revenue is seasonal, with stronger testing activity generally in the quarters ending June 30 and December 31 and weaker activity in the quarters ending September 30 and March 31.
- Customer concentration is significant: SAC represented 37.3% of FY2012 revenue, China Banking Association represented 10.5%, and the five largest customers represented 63.8%. Government-controlled entities generated 68.4% of revenue.
- The VIE structure creates regulatory and enforcement risks. If PRC authorities reject the contractual arrangements or the company cannot enforce them, ATA could lose control of ATA Online and would no longer be able to consolidate its results. ATA Online reported FY2012 revenue of RMB49.8 million and net income of RMB25.8 million.
- Other risks include PRC regulatory and foreign-exchange restrictions, loss of preferential tax treatment, customer budget reductions, competition, technology failures, data-security breaches, intellectual-property disputes, and limited PCAOB inspection access in China.
- Net income benefited from RMB3.6 million of foreign-currency exchange gains and RMB2.1 million of interest income. Share-based compensation was RMB12.3 million, and a prior-year impairment of a Microsoft-related prepaid royalty did not recur.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal controls were effective as of March 31, 2012.
Important facts for investors to verify
- Confirm that the intended period is the fiscal year ended March 31, 2012 rather than a standalone 2011 fourth quarter, which the filing does not separately present.
- Assess the sustainability of SAC-related revenue and the potential loss of most outsourced SAC online-training revenue after March 2013.
- Review customer concentration, government budget exposure, accounts-receivable aging, and the RMB30.1 million doubtful-account allowance.
- Evaluate the legal enforceability and regulatory status of the ATA Online VIE agreements and the effect of any inability to consolidate ATA Online.
- Verify renewal of HNTE tax qualifications for ATA Learning, ATA Online and Beijing JDX, because failure could raise their tax rate from 15% to 25%.
- Consider cash accessibility, PRC statutory reserves, foreign-exchange controls and the effect of the special dividend on parent-company liquidity.
- Review dilution from outstanding options and restricted shares, as well as the company’s concentrated shareholder ownership and relatively limited ADS trading liquidity.