China Finance Online Co. Limited (NASDAQ:JRJC) Q1 2019 Earnings Conference Call June 26, 2019 8:00 PM ET
Dixon Chen – Investor Relations
Zhiwei Zhao – Chairman and Chief Executive Officer
Lin Yang – Vice President
- Dixon Chen - 投资者关系
- 赵志伟 - 董事长兼首席执行官
- 林洋 - 副总裁
Pat Murphy – Analyst
Bob Wilson – Analyst
- Pat Murphy - 分析师
- 鲍勃威尔逊 - 分析员
Ladies and gentlemen, thank you for standing by and welcome to China Finance Online First Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Today’s call include a question-and-answer session [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, 27 of June 2019.
I would now like to hand the conference over to your speaker host today, Mr. Dixon Chen. Thank you. Please go ahead, sir.
女士们，先生们，感谢您的支持，欢迎参加2019年第一季度中国金融在线财报电话会议。 此时所有参与者都处于只听模式。 今天的电话包括一个问答环节[操作员说明]我必须告诉你，这个会议今天正在记录，即2019年6月27日星期四。
我现在想把会议交给你的发言人主持人，Dixon Chen先生。 谢谢。 请继续，先生。
Thank you, operator. Welcome to China Finance Online’s first quarter 2019 financial results 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. Thereafter, the management will hold a Q&A session. We will provide translations during the Q&A.
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 believe, estimates, plans, expects, anticipates, projects, targets, 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 caution 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 like to turn the conference call to Mr. Zhao.
[Foreign Language] Good morning and good evening. Thank you for joining us for our first quarter earnings conference call.
[Foreign Language] During the first quarter of 2019, our bottom line loss was further narrowed. With the improvement of business model and operational efficiency, we also grew our gross margin from same period of last year.
[Foreign Language] Our business that leveraged impact to empower wealth management is starting to bear fruit. In late 2018, we introduced i-TAMP, Turnkey Asset Management Platform, a one-stop ecosystem that empowers financial advisers and wealth managers to provide investment consultation and advices covering stock, mutual funds, wealth management products, insurance, trusts, other financial products. Since then, we have attracted more and more financial advisers and wealth managers to open their online offices on our platform. In the first quarter of 2019, with the market climate recovery and the improvement of our business model, our investment advisory service business posted solid growth.
[Foreign Language] Our Robo-Advisor recorded another strong quarterly performance in the first quarter of 2019. According to our proprietary asset allocation system, our Robo-Advisor product, 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 established a solid track record of balancing performance and risk management. Lingxi produced a return of 5.68% during the first quarter of 2019, once again among the best-performing products in the marketplace. The best strategy of Lingxi posted a return of 9.3% in the first quarter. All strategies of Lingxi managed to control the fluctuation under 6% while the volatility of Shanghai Index reached 18.77% during the same period.
At the same time, our initiative to empower wealth management service has reached a breakthrough, with over 10 financial institutions, including brokerage firms, banks and asset management firms forming partnerships with us. Our fintech capability and 20 years’ operation track record in retail customer-oriented services are well received and recognized by these financial institutions.
In May 2019, we hosted the 2019 Value Discovery Forum for Public Companies on Chinese Stock Markets in Shenzhen. A total of 260 professionals from over 230 prestigious technology companies and public companies listed on Shenzhen and Shanghai stock markets and influential financial institutions attended the forum. The main topics in the forum were technology-driven productivity, industries for the future and social benefits of innovation.
2019年5月，我们在深圳举办了2019年中国股票市场上市公司价值发现论坛。 来自深圳，上海股票市场和有影响力金融机构的230多家知名科技公司和上市公司共260名专业人士参加了此次论坛。 论坛的主要议题是技术驱动的生产力，未来的产业和创新的社会效益。
During the forum, we also announced 2019’s Future Enterprise List, 2019’s Top Tech and Innovation Value Company List and 2019’s Best Value Public Company List. These rankings are based on China Finance Online’s proprietary algorithm, dynamically tracking a series of data points including financials, valuation, growth trends, ESG, which stands for environmental, social, governance and other metrics, which enable investors to identify investment opportunities and discover value companies.
Looking into the future, we’ll continue to not only strengthen our fintech capabilities through optimization and upgrading of our services and products, but also turn fintech research findings into scalable revenue. While maintaining our goal of fully realizing our future growth potentials, we will strive to strengthen – further improve our operational efficiency.
展望未来，我们将继续不仅通过优化和升级我们的服务和产品来增强我们的金融科技能力，而且还将金融科技研究成果转化为可扩展的收入。 在保持充分实现未来增长潜力的目标的同时，我们将努力加强 - 进一步提高我们的运营效率。
With that, I’ll now turn the call to our Vice President, Lin Yang, to go over financial details for the quarterly results. Thank you.
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 $9.9 million compared with $13.3 million during the first quarter of 2018 and $10.7 million during the fourth quarter of 2018. During the first quarter of 2019, revenues from financial services, the financial information and the advisory business and advertising services contributed 45%, 33% and 21% of the net revenues, respectively, compared with 50%, 37% and 13%, respectively, for the corresponding period in 2018.
Revenues from financial services were $4.5 million compared with $6.7 million during the first quarter of 2018 and $5.7 million during the fourth quarter of 2018. Revenues from financial services were mainly generated from equity brokerage services. Revenues from the equity brokerage business decreased by 31.8% year-over-year and 20.5% quarter-over-quarter. The year-over-year and quarter-over-quarter decreases in revenues from financial services were mainly due to reduced revenue from the equity brokerage business.
Revenues from the financial information and advisory business were $3.2 million compared with $4.9 million during the first quarter of 2018 and $2 million in the fourth quarter of 2018. Revenues from the financial information and advisory business were mainly comprised of subscription services from individual and institutional customers and financial advisory services.
During the first quarter, subscription revenues from individual investors decreased by 47.6% year-over-year, mainly due to the streamlining of our sales team and the upgrading of our business operations for the long-term growth prospects of our business. However, subscription revenues from individual investors rose by 26.9% from the fourth quarter of 2018 as the market conditions improved from late 2018.
Revenues from advertising services were $2.2 million compared with $1.7 million in the first quarter of 2018 and $3 million in the fourth quarter of 2018. The increased traffic to our site helped to elevate our advertising revenues on a year-over-year basis.
Gross profit was $6.4 million compared with $8.2 million in the first quarter of 2018 and $6.9 million in the fourth quarter of 2018. Gross margin in the first quarter of 2019 was 54.5% compared with 51.9% in the first quarter of 2018 and 55.1% in the fourth quarter of 2018. The year-over-year increase in gross margin was mainly due to increased revenue contribution from advertising which carries a higher gross margin. The quarter-over-quarter decrease in gross margin was mainly due to the quarter-over-quarter decrease of revenue contribution from advertising and the lower gross margin of equity brokerage business.
General and administrative expenses were $2.7 million compared with $3.3 million in the first quarter of 2018 and $4.9 million in the fourth quarter of 2018. The year-over-year decrease was mainly attributable to effective cost control measures and the ongoing streamlining of the operations. The quarter-over-quarter decrease was mainly due to a onetime, nonrecurring charge to the bad debt provision associated with the security deposit in our previous terminated commodity trading business in the fourth quarter of 2018.
Sales and marketing expenses were $3.6 million compared with $6.2 million in the first quarter of 2018 and $4.4 million in the fourth quarter of 2018. The year-over-year and quarter-over-quarter decreases were mainly attributable to the further streamlining of the sales and marketing division for better efficiency.
Research and development expenses were $2.6 million compared with $3.8 million in the first quarter of 2018 and $2.9 million in the fourth quarter of 2018. The year-over-year and the quarter-over-quarter decreases were mainly attributable to improved efficiency after the consolidation of the R&D team throughout different business units. 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 $8.9 million compared with $13.3 million in the first quarter of 2018 and $12.3 million in the fourth quarter of 2018. The year-over-year and the quarter-over-quarter decreases were mainly due to improved efficiency and effective cost controls.
Loss from operations was $2.5 million compared with a loss from operations of $5 million in the first quarter of 2018 and a loss from operations of $5.4 million in the fourth quarter of 2018.
Net loss attributable to China Finance Online was $2.8 million compared with a net loss of $5.2 million in the first quarter of 2018 and a net loss of $4.4 million in the fourth quarter of 2018.
Fully diluted loss per ADS attributable to China Finance Online was $0.12 for the first quarter of 2019 compared with fully diluted loss per ADS of $0.23 for the first quarter of 2018 and fully diluted loss per ADS of $0.19 for the fourth quarter of 2018. Basic and diluted weighted average number of ADS for the first quarter of 2019 were $22.8 million compared with basic and diluted weighted average number of ADS of $22.8 million for the first quarter of 2018. Each ADS represented five ordinary shares of the company.
Total shareholders’ equity of China Finance Online was $32.9 million as of March 31, 2019.
With that, this wraps up my prepared summary. And…
Ladies and gentlemen, thank you for standing by. We will now resume the call.
Operator, we’ll open for questions.
Thank you. [Operator Instructions] Your first question comes from the line of Pat Murphy. Please go ahead.
谢谢。 [操作员说明]您的第一个问题来自Pat Murphy。 请继续。
You mentioned i-TAMP. What is that? What’s the relationship between i-TAMP and your other business lines? Thanks.
你提到了i-TAMP。 那是什么？ i-TAMP和您的其他业务线之间有什么关系？ 谢谢。
i-TAMP is the short name for Turnkey Asset Management Platform. It’s a one-stop wealth management service platform. China Finance Online’s i-TAMP platform combines our wealth management service capability and our financial technologies to empower financial advisers and wealth managers to increase the efficiency of business development. With it, we’ll enable more customers to receive better service.
i-TAMP是Turnkey资产管理平台的简称。 这是一站式的财富管理服务平台。 China Finance Online的i-TAMP平台结合了我们的财富管理服务能力和金融技术，使财务顾问和财富管理机构能够提高业务发展的效率。 有了它，我们将使更多的客户能够获得更好的服务。
We’re committed to services that enable investors to make easier investment decisions. We developed our products upon not only tackling customers’ needs but also empowering intermediates to improve their services. Back in 2014, we introduced iTougu, a securities advisory service platform that caters towards Chinese investment advisers. Within six months since its inception, there were 5,600 certified investment advisers sign-up and open their virtual stores or offices on our platform.
Subsequently, China Securities Association published iTougu story as a classic case study in 2015 China Securities industry development report. With the growth of middle-class in China, the demand for better wealth management services is also increasingly higher. While retail investors choose to diversify their investments, they demand more and better professional services. Built upon the foundation of iTougu, our i-TAMP has significantly broadened the service offerings, customized service methods and provide financial advisers and wealth managers with a series of powerful tools and strong support in different business contexts such as lead generation, customer acquisition, marketing, client services and training.
In the future, we’ll further enrich the functionalities of the platform, improve user experience and make our i-TAMP platform a wealth management ecosystem. Thank you.
Thank you. Our next question comes from the line of Bob Wilson. Please ask your question.
谢谢。 我们的下一个问题来自鲍勃威尔逊。 请问你的问题。
Thank you. It seems like you're providing technology to both retail and institutional customers. Is there any association between these two businesses?
谢谢。 您似乎正在为零售和机构客户提供技术。 这两个业务之间有关联吗？
The way we are able to use financial technologies to empower institutional investors is attributable to our DNA in both technologies and finance as well as our over 20 years accumulation operational experience in working with retail customers.
For example, our intelligence services for investor education is well regarded by many of our brokerage firm clients. This service is leveraging our advantage in content origination and creation and retail customer operation to enable institutions to provide a real-world contextual and intelligence solutions for investor education.
[Foreign Language] In April this year, we formed a partnership with a well-known and prestigious Chinese bank to provide content for their mobile app. We utilized our content development employees and online service track record to help China – to help this particular bank to strengthen their customer interaction and improve their user experiences. This is another example that will help financial institutions to keep their customers actively engaged.
[Foreign Language] Also, our Robo-Advisor product, Lingxi, since its inception has been leading the market with a strong return in risk management, the fact that Lingxi consistently delivers superior results is due to our proprietary development of intelligent asset allocation systems. With our intelligent asset allocation system gaining recognition among institutions, we are now designing modules or systems for institutions and enabling them to grow wealth management businesses throughout China.
[Foreign Language] Thank you.
[外语]今年4月，我们与一家知名的着名中资银行建立了合作伙伴关系，为其移动应用提供内容。 我们利用我们的内容开发员工和在线服务跟踪记录来帮助中国 - 帮助这家银行加强客户互动并改善用户体验。 这是另一个帮助金融机构保持客户积极参与的例子。
Thank you. [Operator Instructions] There are no further questions. I’d now like to hand the conference back to today’s presenters for their closing remarks. Please continue.
谢谢。 [操作员说明]没有其他问题。 我现在想把会议交回今天的主持人，以便他们结束发言。 请继续。
Thank you, everyone, for attending China Finance Online’s first quarter 2019 earnings conference call. We look forward to speaking with you. You have a good evening.
感谢大家参加中国财经在线2019年第一季度财报电话会议。 我们期待与您交谈。 你有一个愉快的夜晚。
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.
谢谢。 女士们，先生们，今天的会议结束了。 感谢您的参与。 你可能都断开了。
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