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Edited Transcript of JRJC earnings conference call or presentation 29-Nov-18 1:00am GMT

Q3 2018 China Finance Online Co Ltd Earnings Call

BeijingBeijing Dec 31, 2018 (Thomson StreetEvents) -- Edited Transcript of China Finance Online Co Ltd earnings conference call or presentation Thursday, November 29, 2018 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dixon Chen

* Lin Yang

China Finance Online Co. Limited - VP

* Zhiwei Zhao

China Finance Online Co. Limited - Chairman & CEO

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the China Finance Online Report Q3 2018 Earnings Conference Call. (Operator Instructions)

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Dixon Chen, [2]

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Thank you, operator. Welcome to China Finance Online's 2018 Third Quarter and First 9 Months Financial Results Earnings Conference Call. With us today are Mr. Zhiwei Zhao, Chairman and CEO; Mr. Lin Yang, Vice President; and Ms. Julie Zhu, Director of Investor Relations.

Mr. Zhao will provide a summary of business dynamics in the quarter, and then Mr. Yang will review the quarterly financial results.

(technical difficulty)

forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. The words believe, estimates, plans,

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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 condition. 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 turn the conference call over to Mr. Zhao.

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

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(foreign language)

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Dixon Chen, [4]

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Good morning, and good evening. Thank you for joining us for today's call.

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

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(foreign language)

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Dixon Chen, [6]

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Under the continuing weak stock market condition, our third quarter net revenue were lower quarter-over-quarter. However, our gross margin improved year-over-year, and our bottom line loss continue to narrow on a year-over-year basis. With the priority of maintaining future growth potential, we continue to control costs and improve efficiency.

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

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(foreign language)

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Dixon Chen, [8]

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In the third quarter of 2018, the Chinese stock market experienced another round of selloffs, pushing the quarterly loss of Shanghai Composite Index to 0.9% and year-over-year loss to 14.7%. However, our Robo-Advisor product, Lingxi, weathered the storm of a difficult market and continued to outperform the market indexes and its peer Robo-Advisor products in the marketplace. Lingxi posted an average gain of 1.4% in the third quarter of 2018 and an average of 2.9% in the first 9 months of 2018, with an average drawdown rate of 2.1% in the third quarter of 2018 and 4.4% in the first 9 months of 2018, respectively. According to China Finance Online's internal research, in the third quarter of 2018, one of the best performing strategies by Lingxi produced an annualized return of 11%.

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

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(foreign language)

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Dixon Chen, [10]

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Our flagship website, JRJ.com.cn, continued to heighten its market influence with its Alexa's Global Ranking and China Ranking reaching #383 and #56, respectively. In an ongoing environment of sluggish stock market performance, we have been maintaining our dedicated services of providing professional and timely market news and high-quality content and also striving to provide -- explore ways to monetize our news business.

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

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(foreign language)

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Dixon Chen, [12]

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We're pleased that the value of Rifa Financial is gradually recognized by the market. Recently, we entered into a shared transfer agreement with a strategic investor. Upon signing, this strategic investor joins our shareholder base at a valuation of HKD 369 million based on HKD 73.8 million, about USD 9.4 million, in exchange for a 20% equity transfer. Through this strategic partnership, we hope to further unlock the potential of our company's overseas wealth management business.

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

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(foreign language)

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Dixon Chen, [14]

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Starting on November 21, 2018, China Unicom officially enlisted China Finance Online's Lingxi Robo-Advisor on its flagship payment app, EPay. Users of China Unicom EPay mobile app will have access to the one-stop wealth management services of the global asset allocation provided by China Finance Online's Lingxi Robo-Advisor. As one of the big 3 telecom operators in China, China Unicom has 216 million 4G mobile subscribers and a total of 312 million mobile users.

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

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(foreign language)

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Dixon Chen, [16]

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Our newly formed partnership with China Unicom demonstrated the market recognition of our asset allocation capabilities. We remain confident that we are able to provide vast number of retail investors with the best-in-class wealth management experience. In addition, we have gradually penetrated the Chinese financial institutional market with our core fintech-powered intelligent financial products. In the future, we will continue to develop our fintech capabilities, optimize and upgrade our service and product offerings, open new markets and enable our investor clients to identify investment opportunities and capture value in a changing market environment.

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

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(foreign language)

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Dixon Chen, [18]

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With that, I'll turn the call to our Vice President, Lin Yang, to go over our financial details for the quarter. Thank you.

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Lin Yang, China Finance Online Co. Limited - VP [19]

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

Net revenue were USD 8.6 million compared with USD 10.7 million during the third quarter of 2017, and USD 12.9 million during the second quarter of 2018. During the third quarter of 2018, revenues from financial services, the financial information and the advisory business and the advertising services contributed 55%, 27% and 17% of the net revenue, respectively, compared with 70%, 24% and 5%, respectively, for the corresponding period in 2017.

Revenues from financial services were USD 4.7 million compared with USD 7.5 million during the third quarter of 2017 and USD 6 million during the second quarter of 2018. Revenues from financial services consist mainly of equity brokerage services. The year-over-year decrease of revenues from financial services was mainly due to the suspension of commodities brokerage business as well as reduced revenue from the equity brokerage business. The quarter-over-quarter decrease of the revenues from financial services was mainly due to a decline in revenues from the equity brokerage business.

Revenues from the financial information and the advisory business were USD 2.4 million compared with USD 2.6 million during the third quarter of 2017 and USD 5.7 million in the second quarter of 2018. Revenues from the financial information and the advisory business were mainly comprised of subscription services from individual and institutional customers. During the third quarter, subscription revenue from individual customers grew by 520.4% year-over-year, driven by the increased subscription of the company's cloud-based analytical tools. The year-over-year revenue decrease in the financial information and advisory business was mainly due to the weaker performance of the Chinese stock markets affecting our financial advisory business. The quarter-over-quarter decrease in the financial information and advisory business was mainly due to the decrease of revenues from individual subscription services.

Revenues from advertising services were USD 1.4 million compared with USD 0.6 million in the third quarter of 2017 and USD 1.2 million in the second quarter of 2018. The readership recognition of our premium content helped to elevate our advertising revenues on both year-over-year and quarter-over-quarter basis.

Gross profit was USD 5 million compared with USD 4.8 million in the third quarter of 2017 and USD 8.5 million in the second quarter of 2018. Gross margin in the third quarter of 2018 was 58.2% compared with 44.9% in the third quarter of 2017 and 65.5% in the second quarter of 2018. The year-over-year increase in gross margin was mainly due to the year-over-year increase of revenues from individual subscription services, which carry a higher margin. The quarter-over-quarter decrease in gross margin was mainly due to the quarter-over-quarter decrease of revenues from individual subscription services.

General and administrative expenses were USD 3.1 million, a decrease of 4.9% from USD 3.2 million in the third quarter of 2017, and an increase of 2% from USD 3 million in the second quarter of 2018. The year-over-year decrease was mainly due to improved efficiency.

Sales and marketing expenses were USD 4.8 million, a decrease of 31% from USD 6.9 million in the third quarter of 2017, and a decrease of 27.2% from USD 6.6 million in the second quarter of 2018. The year-over-year decreases were mainly attributable to the reduction in expenses associated with the terminated commodity brokerage operation and reduced commissions associated with lower activity in the equity brokerage business. The quarter-over-quarter decreases were mainly attributable to the reduced commissions associated with the lower activity in the equity brokerage business.

Research and development expenses were USD 3.5 million, a decrease of 9.5% from USD 3.8 million in the third quarter of 2017 and a decrease of 7.9% from USD 3.8 million in the second quarter of 2018. The year-over-year and quarter-over-quarter decreases were mainly attributable to improved efficiency after the consolidation of the R&D team. The company continues to maintain a team of senior software engineers, data scientists and capital market professionals to support further development in its fintech capabilities.

Total operating expenses were USD 11.3 million, a decrease of 19.1% from USD 14 million in the third quarter of 2017, and a decrease of 15.2% from USD 13.4 million in the second quarter of 2018. The year-over-year and the quarter-over-quarter decreases were mainly due to lower activity in the equity brokerage business, improved operational efficiency and effective cost controls.

Loss from operations was USD 6.3 million compared with a loss from operations of USD 9.2 million in the third quarter of 2017 and a loss from operations of USD 4.9 million in the second quarter of 2018. Net loss attributable to China Finance Online was USD 6 million compared with a net loss of USD 8.5 million in the third quarter of 2017 and a net loss of USD 4.3 million in the second quarter of 2018.

Fully diluted loss per ADS attributable to China Finance Online was USD 0.26 for the third quarter of 2018, compared with fully diluted loss per ADS of USD 0.37 for the third quarter of 2017. Basic and the diluted weighted average numbers of ADS for the third quarter of 2018 were 22.8 million compared with basic and the diluted weighted average number of ADS of 22.7 million for the third quarter of 2017. Each ADS represents 5 ordinary shares of the company.

Now let me walk you through the first 9 months of 2018 financial results.

Net revenues for the first 9 months of 2018 were USD 34.8 million, an increase of 20% compared with USD 29 million in the first 9 months of 2017. Gross profit for the first 9 months of 2018 was USD 21.7 million, an increase of 55.8% compared with USD 13.9 million in the first 9 months of 2017. Net loss attributable to China Finance Online for the first 9 months of 2018 was USD 15.5 million compared to a net loss of USD 28.4 million in the first 9 months of 2017. Fully diluted loss per ADS attributable to China Finance Online was USD 0.68 for the first 9 months of 2018, compared with fully diluted loss of USD 1.25 for the first 9 months of 2017. Total shareholder equity of China Finance Online was USD 39.6 million as of September 30, 2018.

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 Pat Murphy.

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Unidentified Analyst, [2]

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Looks like the Chinese stock market has been very weak this year, but your Robo-Advisor managed to generate a positive return. What kind of combination does it -- to achieve such a performance?

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Dixon Chen, [3]

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(foreign language)

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [4]

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(foreign language)

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Dixon Chen, [5]

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Lingxi Robo-Advisor features our cutting-edge fintech, along with AI, to provide investors with customized wealth management services and high-quality, high efficient -- highly efficient intelligent financial asset allocation.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [6]

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(foreign language)

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Dixon Chen, [7]

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Based upon our knowledge of global market trend and asset allocation algorithm, Lingxi Robo-Advisor excelled in the test of this difficult market and continued to outperform the market indexes and the majority of its peer products in the marketplace.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [8]

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(foreign language)

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Dixon Chen, [9]

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Because of its outstanding performance in both return and risk control, Lingxi, our Robo-Advisor, is increasingly receiving more recognition from large institutions. After our partnership with enterprise software giant YonYou, which we announced a few months ago, we recently inked a strategic partnership with China Unicom our intelligent asset allocation. As we mentioned in our earnings press release, Lingxi has been enlisted by China Unicom for its flagship mobile app, EPay. Now the users of China Unicom can log in their EPay account and enter into EPay wealth management section and experience the professional wealth management services powered by Lingxi Robo-Advisor.

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Operator [10]

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(Operator Instructions) Your next question comes from the line of Bob Wilson.

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Unidentified Analyst, [11]

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While reviewing the quarter, your revenue's down and your loss increased from last quarter as well. In such a market filled with uncertainties, what will you do to prepare yourself for the challenges?

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Dixon Chen, [12]

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(foreign language)

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

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(foreign language)

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Dixon Chen, [14]

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In the third quarter, the Chinese stock market remained sluggish, and uncertainty increased. Our revenue declined from a quarter ago as a result of that. On one hand, we're consolidating high-quality resources, strengthen our fintech core competence, promoting our product in the marketplace and increasing our earning power. On the other hand, we have been streamlining our internal resources and increasing overall operational efficiency.

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Operator [15]

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Your next question comes from the line of Pat Murphy.

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Unidentified Analyst, [16]

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Your ranking on Alexa has been on the rise quarter after quarter. A 3-part question, what have you done to get there? Is that sustainable? And what's your plan to turn the growing traffic to your site into revenue?

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Dixon Chen, [17]

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(foreign language)

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [18]

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(foreign language)

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Dixon Chen, [19]

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The rising recognitions of the website is mainly attributable to our professional news and content development. We have amassed high-quality resources, along with hot topics of macroeconomic updates and policy dynamics to provide vast investor audience with deep dive economic analysis about investment philosophies. More and more news aggregators platforms are using our content or republishing our reports.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [20]

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(foreign language)

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Dixon Chen, [21]

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In addition, with our professional platform and large interest in the market, China Finance Online has successfully hosted high-caliber conferences, such as 2018 Summer World Economic Forum Night and Industry Transition and Reform Forum, and 2018 Chinese Publicly Listed Company Innovation Summit. Through these conferences, we help investor to restore confidence in the challenging market environment, identify -- also identify value and investing opportunities and embrace more and new innovations.

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Zhiwei Zhao, China Finance Online Co. Limited - Chairman & CEO [22]

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(foreign language)

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Dixon Chen, [23]

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We utilized our core competence and track record in news and data analysis to introduce Chinese A-share headline news, smart research report and other paid products. These products not only enable our customers and clients to better understand the market, but also enable us to monetize through innovation and generate revenue for us as well.

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Operator [24]

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There are no further question at this time. I would now like to hand the conference back to today's presenter. Please continue.

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Dixon Chen, [25]

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Thank you, everybody, for attending China Finance Online Third Quarter 2018 Earnings Conference Call. We look forward to speaking with you. Thank you.

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Operator [26]

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Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You made now all disconnect.