China Finance Online Co. Limited
Q2 2016 Earnings Call Transcript

Published: 19 Aug 2016

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to China Finance Online’s Second Quarter 2016 Earnings Conference Call. At this time, all participants are on mute. I must advise you that this conference is being recorded today, Friday 19 August 2016. Thank you Ms. Julie Zhu, you may begin your conference now.

[Julie Zhu:]

Thank you, operator. Welcome to China Finance Online’s second quarter of 2016 earnings conference call. With us today are Mr. Zhiwei Zhao, Chairman and CEO, Mr. Jeff Wang, Director and CFO, and Mr. David Tang, Vice President of Strategy and Finance. The Management will not hold a Q&A session due to time constraints. If you have any questions, please feel free to contact our Investor Relations Department. Before we begin I will remind all listeners that throughout this call we may present statements that may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, estimates, plans, expects, anticipates, projects, targets, optimistic, intent, aim, future, will, or similar expressions are intended to identify forward-looking statements. All statements other than historical facts may be deemed forward-looking statements. These forward-looking statements are based on current expectations or beliefs, including but not limited to statements concerning China Finance Online’s operations, financial performance, and conditions. China Finance Online cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including those discussed in China Finance Online’s reports filed with the Securities and Exchange Commission from time to time. China Finance Online specifically disclaims any obligation to update the forward-looking statements in the future. At this time, I would now like to turn the conference call over to Mr. Zhao.

[Zhiwei Zhao:]

Good day everyone, and thank you for joining today’s call. I’m pleased to report another quarter in which we added and expanded the features we provide to our online financial and advisory services customers. Following multiple quarters of strong double-digit growth, our pace of growth slowed during the quarter due to unfavorable market conditions. We are taking measures to adapt to China’s ever-changing financial market. Despite unfavorable market conditions, we continue to make progress in developing new technologies and market innovations, which will ensure that we are well positioned for the next stage of China’s FinTech development. I am confident that these developments will create a sustainable base for growth going forward, as more and more investors are seeking reliable and advanced platforms to make their investments through. Our newest growth drivers, including Yinglibao and iTougu, continued to make good progress during the quarter. Yinglibao, our financial platform that integrates wealth management solutions and mutual fund distribution, in particular grew strongly as it attracts more investors and assets. iTougu, our investment advisory platform, is also improved. In conclusion, I’m pleased with the progress we have made in executing our financial services and advisory growth strategy, and look forward to further enhancing the services we have on offer across China to create greater value for our customers and shareholders. With that, I now turn the call to our CFO, Jeff Wang, to go over the financial details for the quarter. Thank you.

[Jeff Wang:]

Thank you, Zhiwei. Let me walk you through our major items for the second quarter. Please note that all financial numbers are presented in U.S. dollars and rounded to one decimal point for approximation. Net revenues were US$16 million, a decrease of 30.6% from US$23.1 million during the second quarter of 2015, and a decrease of 47.8% from US$38.7 million during the first quarter of 2016. During the second quarter of 2016, revenues from financial services, financial information and advisory business, and advertising services, contributed 76%, 18% and 5% of the net revenues respectively, compared with 73%, 20% and 7% respectively for the corresponding period in 2015. Revenues from financial services were US$12.2 million, a decrease of 27.6% from US$16.8 million during the second quarter of 2015, and 54.5% from US$26.8 million during the first quarter of 2016. Revenues from financial services comprised of equity and commodity brokerage services. Year-over-year and quarter-over-quarter decreases were mainly due to a decrease in revenues from the company’s commodities brokerage services. Revenues from financial information and advisory business were US$2.9 million, a decrease of 38.6% from US$4.7 million during the second quarter of 2015, and 8.5% from US$3.2 million in the first quarter of 2016. Revenues from financial information and advisory business comprised of subscription services from individual and institutional customers. Revenue from advertising were US$0.9 million, a decrease of 43.7% from US$1.5 million in the second quarter of 2015, and an increase of 45.4% from US$0.6 million in the first quarter of 2016. Gross profit was US$12.1 million, a decrease of 33.5% from US$18.2 million in the second quarter of 2015, and a 53.1% from US$25.9 million in the first quarter of 2016. Gross margin in the second quarter of 2016 was 75.7%, compared with 78.9% in the second quarter of 2015, and 84.3% in the first quarter of 2016. The year-over-year and quarter-over-quarter decreases in gross margin were mainly due to a decrease in revenues from the company’s commodities brokerage services, which typically have higher gross margins. General and administrative expenses were US$5.6 million, a decrease of 7.5% from US$6.1 million in the second quarter of 2015, and an increase of 14.8% from US$4.9 million in the first quarter of 2016. The year-over-year decrease was mainly attributable to a decrease in share-based compensation expenses. Sales and marketing expenses were US$11 million, an increase of 23.8% from US$8.8 million in the second quarter of 2015, and a decrease of 7% from US$11.8 million in the first quarter of 2016. The year-over-year increase was primarily due to an increase in marketing expenses and staff-related expenses, which were primarily driven by an increase in the number of staff. The quarter-over-quarter decrease was mainly attributable to a decrease in sales bonus. Research and development expenses were US$3.1 million, an increase of 16.1% from US$2.7 million in the second quarter of 2015, and 15.9% from US$2.7 million in the first quarter of 2016. The year-over-year and the quarter-over-quarter increases were mainly attributable to an increase in the staff-related expenses, primarily driven by an increase in the number of staff to support further growth. Total operating expenses were US$27.5 million, an increase of 55.8% from US$17.6 million in the second quarter of 2015, and 41.7% from US$19.4 million in the first quarter of 2016. During the second quarter of 2016, the company recorded a non-cash impairment loss of US$1.1 million in intangible assets, and a non-cash impairment loss of US$6.6 million in goodwill. Loss from operations was US$15.3 million, compared with an income from operations of US$0.6 million in the second quarter of 2015, and US$7 million in the first quarter of 2016. The company completed the remaining part of the framework agreement signed on December 11, 2015 with Shanghai EBI Capital Company Limited for the sale of the financial portal stockstar.com, and recorded a gain of US$22.4 million from the execution of this agreement during the second quarter of 2016. The company has received the entirety of the consideration related to the transaction as of June 30, 2016. We will use the proceeds to reinvest in and fully focus on developing new businesses like Yinglibao, our investment advisory services, and on further strengthening the competitive advantages that our existing financial services have. Net income attributable to China Finance Online was US$12.8 million, an increase of 213.5% from US$4.1 million in the second quarter of 2015, and 532.9% from US$2 million in the first quarter of 2016. Fully diluted earnings per ADS attributable to China Finance Online was $0.50 for the second quarter of 2016, compared with $0.16 for the second quarter of 2015, and $0.08 for the first quarter of 2016. Basic and diluted weighted average numbers of ADSs for the second quarter of 2016 were 22.6 million and 25.4 million respectively. Each ADS represents five ordinary shares of the company. As of June 30, 2016, total cash and cash equivalents were US$69.1 million, compared with US$85.7 million as of December 31, 2015. Total shareholders’ equity of China Finance Online was US$103.2 million as of June 30, 2016, compared with US$88 million as of December 31, 2015. I will now quickly go over the results for the first half of 2016. Net revenues for the first half of 2016 was US$46.8 million, an increase of 27% compared with 36.8 million in the first half of 2015. Gross profit for the first half of 2016 was 38 million, and increased 33.4% compared with US$28.5 million in the first half of 2015. Net income attributable to China Finance Online for the first half of 2016 was US$14.8 million, increased 440.5% compared to US$2.7 million in the first half of 2015. Fully diluted earnings per ADS attributable to China Finance Online was $0.58 for the first half of 2016, compared with $0.11 for the first half of 2015. This concludes my remarks, and thank you everyone.

[Operator:]

This concludes our conference for today. Thank you for participating. You may all disconnect.