ATA, Inc. :ATAI-US: Earnings Analysis: Q2, 2017 By the Numbers : November 11, 2016

ATA, Inc. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of ATA, Inc. – Houghton Mifflin Harcourt Company, TAL Education Group Unsponsored ADR Class A and Citrix Systems, Inc. (HMHC-US, XRS-US and CTXS-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 9.77 million, Net Earnings of USD -5.34 million.
  • Gross margins narrowed from 45.64% to 45.37% compared to the same period last year, operating (EBITDA) margins now -14.31% from -22.84%.
  • Earnings declined although operating margins improved from -22.84% to -14.31%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 8.46 34.59 6.85 14.74 9.77
Revenue Growth (%YOY) -49.19 72.97 6.03 -6.29 15.42
Earnings (mil) -2.23 7.71 -2.35 0.63 -5.34
Earnings Growth (%YOY) -255.24 92.69 2.08 -36.29 -139.46
Net Margin (%) -26.33 22.29 -34.36 4.28 -54.62
EPS -0.1 0.34 -0.1 0.03 -0.23
Return on Equity (%) -14.68 50.08 -15.07 4.17 -37.11
Return on Assets (%) -12.07 39.9 -12.28 3.51 -29.9

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Market Share Versus Profits

Revenues History
Earnings History

ATAI-US‘s change in revenue this period compared to the same period last year of 15.42% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ATAI-US is holding onto its market share. Also, for comparison purposes, revenues changed by -33.73% and earnings by -946.14% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline was driven by the drop in gross margins from 45.64% to 45.37%. This drop in earnings would have been worse were in not for operational cost control activities, which helped the operating margins (EBITDA margins) improve from -22.84% to -14.31%. For comparison purposes, gross margins were 49.64% and EBITDA margins were 11.59% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ATAI-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 186.56 days from 388.61 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from -22.84% to -14.31%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from -24.50% to -46.84%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

ATA, Inc. engages in providing computer-based testing services. Its services include test delivery, assessment, campus recruitment, and e-learning. The company was founded in 1999 by Ma Xiao Feng and Wang Lin and is headquartered in Beijing, China.

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