BeijingBeijing Jul 24, 2020 (Thomson StreetEvents) — Edited Transcript of China Finance Online Co Ltd earnings conference call or presentation Friday, July 24, 2020 at 12:00:00pm GMT

China Finance Online Co. Limited – Chairman & CEO

Ladies and gentlemen, thank you for standing by and welcome to the China Finance Online Reports Q1 2020 Earnings Conference Call. (Operator Instructions)

I would now hand over to your first speaker, Mr. [Dixon Chen]. Sir, please go ahead.

Thank you, operator. Welcome to China Finance Online’s 2020 First Quarter Financial Results Earnings Conference Call. With us today are Mr. Zhiwei Zhao, Chairman and CEO; and Mrs. Julie Zhu, acting Chief Financial Officer.

Mr. Zhao will provide a summary of business dynamics in the quarter, and then Ms. Zhu will review the quarterly financial results. And thereafter, the management will hold a answer — a question-and-answer session.

Before we begin, I’ll remind all listeners that throughout this call, we may present statements that may contain forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. The words belief, estimates, plans, expect, anticipate, projects, target, optimistic, intend, 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 all these statements, by their nature, involve risks and uncertainties, and the 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 like to turn the conference call over to Mr. Zhao. (foreign language)

Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [3]

[Interpreted] Good morning and good evening. Thank you for joining us for today’s earnings conference call.

Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [5]

[Interpreted] During the first quarter of 2020, the COVID-19 pandemic caused a devastating blow to the Chinese economy and created unprecedented uncertainties for the global economy. The stock markets around the world experienced massive sell-offs and unusual volatility. As a result, our institutional business was negatively impacted as some institutions scaled down or postponed their advertising placements. And our business development activity were limited by the lockdowns and travel restrictions.

However, our financial results of stable revenue and reduced loss demonstrated the resilience of our diversified offerings and the further improvement of cost controls, while we weather the storm and extended our leadership in online user engagements.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [7]

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(foreign language)

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Unidentified Company Representative, [8]

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[Interpreted] Our ability to navigate through the challenging first quarter amid the downturn of the Shanghai stock market is mainly attributable to the outstanding performance of the investment advisory services.

Over the decade, we have dedicated ourselves to better understand the behaviors of mass retail investors in China. We strongly believe that as the Chinese stock market continue to mature, more and more retail investors would willingly seek professionals’ advice, and the transition from simple trading transactions to sophisticated wealth management programs will present more opportunities for professional financial service providers, including us.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [9]

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(foreign language)

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Unidentified Company Representative, [10]

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[Interpreted] The growth of wealth management business also benefited from the fintech wealth management empowerment system that we have developed over the years. Now we are introducing this very system to institutions.

Along with the secular trend that drives financial institutions’ emphasis our wealth management, our investment education services, investment advisory services and asset allocation services are well received by more and more institutions.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [11]

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(foreign language)

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Unidentified Company Representative, [12]

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[Interpreted] In the meantime, we are also constantly building up our service capabilities. In July, we formed a strategic partnership agreement with the global news and financial data’s business, Dow Jones. The 2 parties will work together to better serve the huge financial information and data market in China. This partnership will combine global economic data alongside financial news and information expertise from Dow Jones with China Finance Online’s domestic market-leading data and audience engagement to bring timely, quality and professional capital market information and intelligence to the Chinese investment and business audience.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [13]

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(foreign language)

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Unidentified Company Representative, [14]

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[Interpreted] This partnership with Dow Jones symbolize a strong endorsement of our business philosophy that technology and data-driven knowledge will enable financial services and investors on their quest for excellence and success.

For over 100 years, Dow Jones has established a distinguished reputation for its best-in-class global economic data, financial information and market intelligence. On the other hand, China Finance Online has been fully committed over the last 20 years to building and providing one of the largest financial and economic database for Chinese institutional and retail investors.

We believe that this strategic partner is highly complementary and will create tremendous knowledge and data synergies as well as premium content to benefit over 1,000 of our institutional clients in China.

Sophisticated data analytics and timely news have always been the vital building blocks for our data mining and smart research products that are dedicated to empowering wealth management services in China. We look forward to further collaborations with Dow Jones to explore more opportunities in the Chinese wealth management industry.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [15]

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(foreign language)

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Unidentified Company Representative, [16]

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[Interpreted] In this new environment shaped by the pandemic, we continue to bring innovations to our operations. As a Tier 1 financial news aggregator, we enhanced our production capabilities to introduce a series of high-quality content such as webinars that we invited renowned domestic and international economists and chief strategists to share their views on economy as well as the emerging growth opportunities in the complicated post-pandemic world.

We also continued to explore different medias and diversified channel to deliver our enriched content to our audience. For example, our account on the popular short-form video social media, Douyin, has already attracted nearly 1 million viewers.

On new services, we introduced enterprise value-added services in the recent year. Through both online and offline channels, we provide professional communication services to companies listed on the domestic or international market. This new service has been retaining its growth momentum even during the turbulent first quarter.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [17]

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(foreign language)

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Unidentified Company Representative, [18]

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[Interpreted] During the first quarter, the Chinese stock market suffered a tremendous loss. However, our Robo-Advisor product, Lingxi, produced an average return of 0.2%, once again, outclassing most peer Robo-Advisor products in the marketplace and significantly outperforming the Shanghai Composite Index that suffered a loss of 10% during the same period.

The best strategy of Lingxi posted a return of 2.8% in the first quarter of 2020. All strategies of Lingxi managed to control the expected annualized fluctuation under 12.6%, while the expected annualized volatility of Shanghai Composite index reached 27.8% during the same period.

Powered by our proprietary asset allocation system, Lingxi provides Chinese retail investors with a wide array of investment combinations and personalized global asset allocations through Chinese domestic mutual funds. Since its inception, Lingxi has established a solid track record of balancing performance and risk management.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [19]

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(foreign language)

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Unidentified Company Representative, [20]

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[Interpreted] Looking into the future, we will continue to strengthen our fintech capabilities through optimization and upgrades of our services and products to empower the wealth management sector in China.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [21]

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(foreign language)

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Unidentified Company Representative, [22]

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[Interpreted] With that, I now turn the call to our acting CFO, Julie Zhu, to go over the financial details of the quarterly results. Thank you.

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Julie Zhu, [23]

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Thank you, Mr. Zhao. Let me walk you through our major items for the first quarter. Please note that all financial numbers are unaudited and presented in U.S. dollars rounded to 1 decimal point for approximation.

Net revenues were USD 9.8 million compared with USD 9.9 million during the first quarter of 2019 and USD 8.7 million during the fourth quarter of 2019.

During the first quarter of 2020, revenues from financial services, financial information advisory business, advertising business and enterprise value-added services contributed 42%, 36%, 14% and 8% of the net revenues, respectively, compared with 45%, 33%, 14% and 7%, respectively, for a corresponding period in 2019.

Revenues from financial services were USD 4.2 million compared with USD 4.5 million during the first quarter of 2019 and USD 4.1 million during the fourth quarter of 2019. Revenues from financial services were mainly generated from equity brokerage services. Revenues from the equity brokerage business decreased by 10.8% year-over-year, but increased by 8.9% quarter-over-quarter. The year-over-year decrease in revenues from financial services was mainly due to reduced revenues from the equity brokerage business.

Revenues from the financial information advisory business were USD 3.5 million compared with USD 3.2 million during the first quarter of 2019 and USD 2.2 million in the fourth quarter of 2019. Revenues from the financial information advisory business were mainly comprised of subscription services from individual and institutional customers and financial advisory service. The year-over-year and quarter-over-quarter increases in revenues from the financial information and advisory business were mainly due to the fast-growing investment advisory services.

During the first quarter, investment advisory services for retail investors rose by 61.7% from first quarter of 2019 and 194.1% from the fourth quarter of 2019 as more retail investors were seeking professional advice in the volatile market during the outbreak of the COVID-19 pandemic.

Revenues from advertising business were USD 1.3 million compared with USD 1.4 million in the first quarter of 2019 and USD 1.4 million in the fourth quarter of 2019.

Revenues from enterprise value-added services were USD 0.8 million compared with USD 0.7 million in the first quarter of 2019 and USD 0.9 million in the fourth quarter of 2019. Enterprise value-added services is a relatively new service that came out of our advertising business. Leveraging its accumulated large corporate data and research and increasing audience-based online, China Finance Online provides professional communication services to companies listed on domestic or international markets to help increase their visibility in the market.

Gross profit was USD 5.9 million compared with USD 6.4 million in the first quarter of 2019 and USD 5.5 million in the fourth quarter of 2019. Gross margin in the first quarter was 60.1% compared with 64.5% in the first quarter of 2019 and 63.8% in the fourth quarter of 2019. The year-over-year decrease in gross margin was mainly due to decreased revenue contribution from individual subscription services, which has a higher gross margin and the decreased gross margin related to Hong Kong brokerage business in the first quarter of 2020.

G&A expenses were USD 2.2 million compared with USD 2.7 million in the first quarter of 2019 and USD 4.7 million in the fourth quarter of 2019. The year-over-year decrease was mainly attributable to further streamlining of the corporate managerial operations. The quarter-over-quarter decrease was mainly attributable to onetime charges, including higher bad debt provision in the fourth quarter of 2019.

Sales and marketing expenses were USD 3.3 million compared with USD 3.6 million in the first quarter of 2019 and USD 3.1 million in the fourth quarter of 2019. The year-over-year decrease was mainly attributable to improved efficiency. The quarter-over-quarter increase was mainly due to higher marketing expenses related to investment advisory business.

R&D expenses were USD 2 million compared with USD 2.6 million in the first quarter of 2019 and USD 1.8 million in the fourth quarter of 2019. The year-over-year decrease was mainly attributable to improved efficiency after consolidation of R&D teams throughout different business units. The company continues to support research and development in the fintech segment to further develop its fintech capabilities.

Total operating expenses were USD 7.5 million compared with USD 8.9 million in the first quarter of 2019 and USD 9.6 million in the fourth quarter of 2019. The year-over-year decrease was mainly due to improved efficiency and effective cost controls. The quarter-over-quarter decrease was mainly due to bad debt provision at the Hong Kong equity brokerage business in the fourth quarter of 2019.

Loss from operations was USD 1.6 million compared with a loss from operations of USD 2.5 million in the first quarter of 2019 and a loss from operations of USD 4.1 million in the fourth quarter of 2019. Net loss attributable to China Finance Online was USD 1.9 million compared with a net loss of USD 2.8 million in the first quarter of 2019 and a net loss of USD 3.4 million in the fourth quarter of 2019.

Fully diluted loss per ADS attributable to China Finance Online was $0.83 for the first quarter of 2020 compared with fully diluted loss per ADS of $1.22 for the first quarter of 2019 and a fully diluted loss per ADS of USD 1.53 for the fourth quarter of 2019. Basic and diluted weighted average numbers of ADS for the first quarter of 2020 were 2.3 million compared with basic and diluted weighted average number of ADS of 2.3 million for the first quarter of 2019. Each ADS represents 50 ordinary shares of the company.

With that, this wraps up my prepared summary. And operator, we are ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of [Bob Wilson].

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Unidentified Analyst, [2]

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Can you please elaborate on your new partnership with Dow Jones? And specifically, why did Dow Jones choose China Finance Online for the Chinese market?

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [3]

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(foreign language)

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Unidentified Company Representative, [4]

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[Interpreted] We are pleased with our partnership with Dow Jones to pursue the large Chinese market of news and data services.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [5]

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(foreign language)

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Unidentified Company Representative, [6]

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[Interpreted] According to the new agreement, Dow Jones will provide our subsidiary — our wholly owned subsidiary, Genius Finance, with access to a subset of Chinese language newswire service, which will include market commentary and spot news in Chinese language.

Genius Finance’s market-leading domestic needs and financial data will join force with Dow Jones’ best-in-class global resources to bring the timely, professional and high-quality global news and data to the Chinese domestic market.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [7]

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(foreign language)

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Unidentified Company Representative, [8]

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[Interpreted] With the furthering economic globalization, there will be more correlation between Chinese market and global markets. And more and more Chinese institutional and retail investors increasingly demand global news and data, we believe that with this partnership with Dow Jones, our new offerings will enable them to closely track global market trends and make more educated decisions and capture more investment opportunities.

In another world, we will further empower the Chinese financial sector and capital market with our enriched offerings.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [9]

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(foreign language)

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Unidentified Company Representative, [10]

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[Interpreted] As a matter of fact, there are a number of leading financial news and data services companies — providers in China. And the fact Dow Jones chose China Finance Online as its partner in China for its business news and data services is not only a high recognition of our market-leading position in China, but also a strong endorsement to our philosophy that technology and data-driven knowledge will enable financial institution and retail investors on their quest for excellence and success.

Going forward, we expect to further our partnership and leverage our synergy to explore more areas beyond global news and data services.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [11]

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(foreign language)

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Unidentified Company Representative, [12]

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[Interpreted] China Finance Online’s wholly owned subsidiary, Genius Finance, was the first of its kind in China to provide professional financial data services. Over its 26 years corporate history, Genius Finance has transformed from a traditional financial data service provider to a digital and smart system developer and apply many technologies such as data mining technologies, artificial intelligence, cloud computing, natural language processing and machine learning to empower stock markets, banks, insurance companies, brokerage firms and the world’s largest asset management companies with our high-quality data and fintech solutions.

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Zhiwei Zhao, China Finance Online Co. Limited – Chairman & CEO [13]

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(foreign language)

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Unidentified Company Representative, [14]

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[Interpreted] Looking to the future, we will continue to enrich and upgrade our products and services and service network and leverage Genius Finance’s innovative data mining and research capabilities to advance the Chinese wealth management technologies to a new level.

I hope that answered your question.

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Operator [15]

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(Operator Instructions) There are no further questions in queue. Presenters, please continue.

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Unidentified Company Representative, [16]

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Thank you, everyone, for attending China Finance Online’s 2020 first quarter’s earnings conference call. We look forward to speaking with you.

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Operator [17]

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Thank you, presenters. Ladies and gentlemen, this concludes our conference for today. Thank you all for participating. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]