ATA Reports 2018 First Quarter Financial Results, Provides Update on ATA Online Sale Transaction

ATA Inc (NASDAQ:ATAI), a leading provider of advanced testing technologies in China announced preliminary unaudited financial results for the three months ended March 31, 2018. The company also provided an update on the sale of the ATA online Education Technology, the company’s subsidiary that operates the testing services and delivery business.

As quoted in the press release:

Mr. Jack Huang, ATA’s President, stated, “We are pleased to be making continued progress on the ATA Online transaction (the ‘Transaction’) and are now working to complete the second closing after having completed the first closing on April 4, 2018. In the meantime, we also continue to explore and evaluate acquisition opportunities within the education sector. One such opportunity we recently announced was ATA’s strategic investment in Beijing Biztour International Travel Service Co., Ltd. (‘Beijing Biztour’), one of China’s largest providers of B2B educational tour services. Beijing Biztour is well known for its international educational study tour services for students in China who are interested in overseas study tours primarily in the U.S., United Kingdom, and Australia. We continue working closely with the Beijing Biztour team and look forward to leveraging the many synergies between our two companies to better position Beijing Biztour for success and accelerated growth of its business.”

Mr. Huang continued, “Our strategy continues to focus on leveraging ATA’s existing competency-focused assessment and education service capabilities and the strategic opportunities that we have been working on to transform our company into a leading international education service provider. We continue to explore the possibility of using the proceeds from the Transaction to fund potential M&A opportunities within the education sector.”

As previously announced in a press release on February 6, 2018, ATA entered into a share purchase agreement (the “Share Purchase Agreement”) with a group of investors including two entities affiliated with funds managed by CDH Investments, a major Chinese alternative asset management firm based in Beijing; New Beauty Holdings Limited, a company controlled by Mr. Kevin Xiaofeng Ma, the Chairman and Chief Executive Officer of ATA; and four holding companies controlled by certain management members of ATA Online, with respect to the Transaction (collectively, the “Buyer Group”).

Under the terms of the Share Purchase Agreement, the Buyer Group agreed to acquire all of the outstanding equity interests of ATA Online, which was then held directly or indirectly by ATA, for a total consideration of US$200.0 million in cash. The US$200.0 million in cash consideration payable by the Buyer Group for ATA Online represents an 87.4% premium over ATA’s market capitalization (calculated based on the closing trading price of ATA’s ADSs on February 5, 2018).

Mr. Ma paid a cash deposit in the amount of US$20.0 million to ATA as collateral and security for the payment obligations of the Buyer Group as agreed under the Share Purchase Agreement.

The closing of the Transaction is expected to take place in three stages subject to the satisfaction of various conditions precedent in the Share Purchase Agreement. The first of the three closings was completed on April 4, 2018. The Company currently expects the second closing to take place in early third quarter of 2018 with the Transaction to be completed later in the third quarter of 2018. The Company will continue to provide updates throughout the process but cautions investors that there are no assurances that all of the conditions for the closing stated in the Share Purchase Agreement will be satisfied or that the Transaction will ultimately be completed.

If the Transaction is not completed, ATA will continue to conduct ATA Online-related businesses and may consider and evaluate other strategic opportunities. In such a circumstance, there can be no assurances that ATA’s continued operation of the ATA Online-related businesses or any alternative strategic opportunities will result in the same or greater value to shareholders as with the sale of ATA Online.

GAAP Results

Impact of ATA Online Transaction on the Company’s Financial Statements
Because the Transaction represents a strategic shift and has a major effect on ATA’s results of operations, the disposed business lines have been reclassified as discontinued operations. For the periods presented in this press release, the assets and liabilities of the discontinued operations are presented separately on the consolidated balance sheets, and the results of the discontinued operations, less applicable income taxes, are reported as a separate component of income, discontinued operations, on the consolidated statements of comprehensive income (loss).

2018 First Quarter
ATA’s total net revenues for the three months ended March 31, 2018, were RMB218,499 (US$34,834), compared to RMB2.3 million in the prior-year period. This decrease was primarily due to the reclassification of approximately RMB1.4 million in rental income from net revenues to other operating income, net, as a result of the adoption of new revenue guidance ASC 606, effective January 1, 2018. The related costs were also reclassified from cost of revenues to other operating income, net.

Net loss from continuing operations for the three months ended March 31, 2018, improved to RMB11.1 million (US$1.8 million) from net loss of RMB35.1 million in the prior-year period, primarily due to an RMB26.8 million decrease in income tax expenses specifically related to withholding taxes from prior-year period.

Net loss from discontinued operations, net of income tax, for the three months ended March 31, 2018, was RMB27.5 million (US$4.4 million), compared to RMB18.8 million in the prior-year period. This was primarily due to increased test monitoring costs and operating expenses related to licensing fees and labor costs associated with new hires and salary increases in the first quarter of 2018.

Balance Sheet Highlights
As of March 31, 2018, ATA’s cash and cash equivalents were RMB173.7 million (US$27.7 million), working capital was RMB262.8 million (US$41.9 million), and total shareholders’ equity was RMB327.1 million (US$52.1 million); compared to RMB53.5 million, RMB225.1 million, and RMB365.1 million, respectively, as of December 31, 2017.

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