China Finance Online's (JRJC) CEO Zhiwei Zhao on Q4 2015 Results - Earnings Call Transcript

| About: China Finance (JRJC)

China Finance Online Co. Limited (NASDAQ:JRJC)

Q4 2015 Earnings Conference Call

April 11, 2016 8:00 p.m. ET

Executives

Julie Zhu - Head of IR

Zhiwei Zhao - Chairman and CEO

Jun Wang - Director and CFO

David Tan - VP of Strategy and Finance

Analysts

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the China Finance Online's Fourth Quarter 2015 Earnings Conference Call.

[Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, 12th of April, 2016.

I would now like to hand the conference over to your first speaker today, Ms Julie Zhu. Thank you. Please go ahead.

Julie Zhu

Thank you, operator. Welcome to China Finance Online's fourth quarter and full year 2015 earnings conference call. With us today are Mr. Zhiwei Zhao, Chairman and CEO; Mr. Jeff Wang, Director and CFO; and Mr. David Tan, Vice President of Strategy and Finance.

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 the Private Securities Litigation Reform Act of 1995. The words believe, estimate, plan, expect, anticipate, project, 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 operation, 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 information in the future.

At this time, I would now like to turn the conference call over to Mr. Zhao.

Zhiwei Zhao

[Interpreted] Good day everyone, and thank you for joining today's call.

We are pleased to end 2015 with a very strong quarter, where net revenues and net income increased substantially by 79% and 177%, respectively, year over year. We made significant progress throughout the year in our transition towards a more transaction-based business model and look forward to starting 2016 on a strong footing.

Financial services remain a significant revenue stream for us and continues to grow rapidly, increasing 95% year over year during this quarter. The newly launched heavy oil brokerage business continued to grow rapidly, demonstrating the popularity new diversified investment products can generate. We are satisfied with the overall performance of our brokerage and trading business during the quarter.

Yinglibao continued to make good progress as we further invest in this development as an important part of our strategic focus.

China's supply side economic reforms will have a profound impact on its capital markets. Under the capital market reform, we believe individual investors will increasingly seek out professional investment advisors and services. Our strategy and platforms, such as iTouGu and Yinglibao, were built with this in mind and will help us to benefit from the rising demand for investment advice from individuals in China.

iTouGu continued to grow rapidly during the quarter and now has over 3.9 million activated users and over 2,500 investment advisors as of the end of the year. Our research also indicates that investment advisors on our platform are among the most active securities advisors in China, which I believe demonstrates the attraction and user stickiness iTouGu is creating.

We continue to roll out new features to gain traction among users and improve the experience with the launch of iTouGu version 3.0 in December 2015. We expect these new features to sustain the platform's continued growth momentum in 2016.

We are working hard to streamline the investment experience and expand our online investment brokerage and advisory business with new and improved products and services. Going forward, I'm confident that our current strategy will lead us to a successful transition.

With that, I now turn the call to our CFO, Jeff Wang, to go over the financial details for the quarter. Thank you.

Jun Wang

Thank you, Zhao-zong. First of all, let me walk you through our major items for the fourth quarter and quickly go over the results for the full year 2015. Please note that all financial numbers are presented in U.S. dollars and rounded to one decimal point for approximation.

Net revenues were $33.6 million, an increase of 79.1% from $18.8 million during the fourth quarter of 2014 and a decrease of 9% from $37 million during the third quarter of 2015. During the fourth quarter of 2015, revenues from financial services, financial information and advisory business and advertising services contributed 77%, 18% and 5% of the net revenues, respectively, compared with 71%, 13% and 15%, respectively, for the corresponding period in 2014.

Revenues from financial services were $25.9 million, an increase of 95.1% from $13.3 million during the fourth quarter of 2014 and a decrease of 15.7% from $30.7 million during the third quarter of 2015. Revenues from financial services comprise of equity and commodities brokerage services. The year-over-year increase was mainly due to a significant increase in revenues from the Company's commodities brokerage services as a result of the newly launched heavy oil brokerage business.

Revenues from financial information and advisory business were $6 million, an increase of 142.2% from $2.5 million during the fourth quarter of 2014 and 35.4% from $4.4 million in the third quarter of 2015. Revenues from financial information and advisory business comprise of subscription services from individual and institutional customers.

As of December 31, 2015, iTouGu, the Company's social-driven stock selection platform, had over 3.9 million activated users and over 2,500 investment advisors.

Revenues from advertising were $1.8 million, a decrease of 39.4% from $2.9 million in the fourth quarter of 2014 and an increase of 0.3% from $1.7 million in the third quarter of 2015.

Gross profit was $27.5 million, an increase of 91.2% from $14.4 million in the fourth quarter of 2014 and a decrease of 13% from $31.6 million in the third quarter of 2015. Gross margin in the fourth quarter of 2015 was 81.8%, compared with 76.6% in the fourth quarter of 2014 and 85.6% in the third quarter of 2015. The year-over-year increase in gross margin was mainly due to the significant increase in revenues from financial services business.

General and administrative expenses were $5.7 million, an increase of 70.9% from $3.3 million in the fourth quarter of 2014 and 77.5% from $3.2 million in the third quarter of 2015. The year-over-year increase was mainly attributable to the share-based compensation expenses.

Sales and marketing expenses were $16.4 million, an increase of 69.2% from $9.7 million in the fourth quarter of 2014 and 24.6% from $13.1 million in the third quarter of 2015. The year-over-year increase was primarily due to an increase in sales bonus.

Research and development expenses were $2.7 million, a decrease of 19.8% from $3.4 million in the fourth quarter of 2014 and an increase of 8.4% from $2.5 million in the third quarter of 2015. The Company expects to continue investing in iTouGu as a part of our long-term strategic goal of providing retail investors with a one-stop solution for their investment needs.

Income from operations were $2.5 million, compared with a loss from operations of $1.8 million in the fourth quarter of 2014 and an increase from operations of $12.9 million in the third quarter of 2015. During the fourth quarter of 2015 we completed part of our framework agreement signed on December 11, 2015 with Shanghai EBI Capital Company Limited. We recorded a gain of $10 million mainly resulted from the execution of this agreement.

Net income attributable to China Finance Online was $10 million, compared with a net income of $3.6 million in the fourth quarter of 2014 and a net income of $9.7 million in the third quarter of 2015.

Fully diluted earnings per ADS were $0.40 for the fourth quarter of 2015, compared with a fully diluted earnings per ADS of $0.14 for the fourth quarter of 2014 and a fully diluted earnings per ADS of $0.39 for the third quarter of 2015. Basic and diluted weighted average numbers of ADSs for the fourth quarter of 2015 were 22.2 million and 25.2 million, respectively. Each ADS represents 5 ordinary shares of the Company.

As of December 31, 2015, total cash and cash equivalents were $85.7 million, compared with $32.5 million as of December 31, 2014.

Total shareholders' equity of China Finance Online was $88 million as of December 31, 2015, compared with $64.6 million as of December 31, 2014.

Full-year 2015 financial results. Net revenues for the full year 2015 were $107.4 million, an increase of 28.3% compared with $83.7 million for 2014.

Revenues coming from financial services for the full year 2015 were $83 million, an increase of 28.2%, compared with $64.7 million for 2014. Revenues from financial information and advisory business for the full year 2015 were $17.2 million, an increase of 66.3%, compared with $10.3 million for 2014. Revenues from advertising for the full year 2015 were $7 million, a decrease of 13.9%, compared with $8.2 million for 2014.

Gross profit for the full year 2015 were $87.7 million, an increase of 38.4% compared with $63.3 million for 2014. Net income attributable to China Finance Online for the full year 2015 was $22.5 million, compared with a net loss of $7.2 million for 2014. Fully diluted earnings per ADS were $0.90 for the full year 2015, compared with a fully diluted loss per ADS of $0.33 for 2014.

With that, operator, we are ready to begin the Q&A session.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]

Stephen Heathers, Park Hill Capital [ph].

Unidentified Participant

Hi. Thanks for taking my question. I was just hoping you could give a little color on how you are building this transaction-oriented model. What's your strategy around that?

David Tan

Thank you. Yes. Currently, commodities, brokerage and trading services with our -- together with our Hong Kong brokerage service, contribute more than 70% of our total revenue. As we are moving into domestic activities [ph], we have already seen meaningful revenues this year -- last year from iTouGu and Yinglibao.

Now iTouGu is successfully providing advice on stock selection and investment portfolio sharing. And then Yinglibao is growing very fast, we sell some mutual funds and other asset management products. We are quite satisfied with our strategic refocusing effort so far.

Our financial portal, jrj.com, is also redesigned and reengineered for product sales and investment advice and more accurate investment intelligence.

Going forward, we will provide more products and services for individual investors to make better investment decisions and to make transactions through our leading platforms. I hope this answers your question on our progress of transition. Thank you.

Operator

[Operator Instructions]

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

Julie Zhu

Thank you to all for participating in this earnings call and webcast. We look forward to speaking with you again.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!