China Finance Online Co., LTD. Reports 2010 Third Quarter Financial Results

BEIJING, Nov. 29, 2010 /PRNewswire-Asia/ -- China Finance Online Co., Ltd. ("China Finance Online", or the "Company") (Nasdaq: JRJC), the technology-driven, user-focused market leader in China in providing vertically integrated financial services and products including news, data, analytics and brokerage through web portals, software systems, and mobile handsets, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2010.

2010 Third Quarter Financial and Operating Highlights

• Registered user accounts increased to 18.46 million as of September 30, 2010, an increase of 40.7% from 13.12 million at September 30, 2009;
• Active paid subscribers were approximately 144,600 as of September 30, 2010, an increase of 29.1% from the prior year period;
• Gross margin in the third quarter of 2010 increased to 85.1% from 84.2% in the comparable quarter of 2009;
• Net income attributable to China Finance Online was $1.4 million for the third quarter of 2010, compared with a net loss of $1.0 million in the third quarter of 2009;
• Excluding stock-based compensation expenses, non-GAAP net income attributable to China Finance Online in the third quarter of 2010 was $1.9 million, compared with non-GAAP net income of $0.6 million in the third quarter of 2009.

2010 First Nine Months Financial Highlights

• Total revenue for the first nine months of 2010 increased by 16.4% year-over-year to $44.9 million from $38.6 million in the first nine months of 2009;
• Gross margin was 86.3% in the first nine months of 2010 compared with 84.8% in 2009;
• Excluding stock-based compensation, non-GAAP net income attributable to China Finance Online for the first nine months of 2010 was $5.8 million, or non-GAAP diluted earnings per ADS attributable to China Finance Online of $0.26, compared with a non-GAAP net income of $1.5 million, or non-GAAP diluted per ADS of $0.07 during the first nine months of 2009.

Mr. Zhiwei Zhao, Chief Executive Officer of China Finance Online, Commented, "We are pleased with our third quarter performance as the ongoing improvement in operating efficiency continues to boost our net profits. Our existing partnerships with key industry institutions have been strengthened through more technological and marketing collaborations. Meanwhile, we continue to attract and expand our registered user base to pave the way for sales and distribution of our future products and value-added services."

Third Quarter Results

As of September 30, 2010, registered user accounts on the Company's web portals (jrj.com and stockstar.com) were 18.46 million, an increase of 40.7% from 13.12 million at September 30, 2009. Active paid subscribers were approximately 144,600 as of September 30, 2010, a 29.1% gain from 112,000 at September 30, 2009. As of September 30, 2010, Daily Growth had approximately 2,140 customer accounts.

Net revenues for the third quarter of 2010 were $14.4 million, compared with $14.6 million for the comparable period in 2009. The main sources of the Company's net revenues were from subscription fees from individual customers, subscription fees from institutional customers, advertising revenues and revenues from brokerage related services, and they contributed 78%, 4%, 12% and 6% to total revenues, respectively, compared to 80%, 3%, 8%, and 9% for the comparable period in 2009. Revenues from institutional customers and revenues from advertising have increased in the third quarter of 2010, compared to the same period in 2009. Subscription fees from institutional customers increased 32.4%; the advertising revenues increased 55.1%.

For the third quarter of 2010, gross profit was $12.28 million compared with $12.27 million for the comparable period in 2009. Gross margin for the third quarter of 2010 increased to 85.1% from 84.2% for the comparable period in 2009.

General and administrative ("G&A") expenses for the third quarter of 2010 were $2.5 million, or 17.5% of net revenues compared with $5.0 million, or 34.3% of net revenues for the comparable period in 2009. The decrease in G&A expenses, excluding stock-based compensation expenses, in both absolute value and as a percentage of net revenues from the third quarter of 2009 was primarily due to decrease in payroll costs as the Company continues to streamline operations through efficiency enhancements. In addition, stock-based compensation related to the activated shares of the performance-based restricted stock awards granted in the third quarter of 2007 has been fully amortized. Excluding stock-based compensation of $0.4 million, adjusted G&A expenses for the third quarter of 2010 were $2.1 million, or 14.8% of net revenues, compared with $3.4 million, or 23.4% of net revenues in the third quarter of 2009.

Sales and marketing expenses for the third quarter of 2010 were $6.35 million compared with $6.42 million in the third quarter of 2009. Sales and marketing expenses as a percentage of net revenues were 44.0% in the third quarter of 2010, in line with the same period in 2009.

Product development expenses for the third quarter of 2010 were $3.2 million compared with $2.9 million in the same quarter in 2009. Product development expenses as a percentage of net revenues was 21.9% compared with 19.7% in the same quarter of the previous year. Management continues to invest in research and development to ensure product superiority.  

Total operating expenses for the third quarter of 2010, were $12.0 million compared with $14.3 million in the third quarter of 2009. Selling, general and administrative ("SG&A") expenses as a percentage of net revenues decreased to 61.6% in the third quarter of 2010 from 78.3% in the third quarter of 2009.  Excluding total stock-based compensation of $0.5 million, adjusted operating expenses were $11.5 million in the 2010 third quarter, compared with adjusted operating expenses of $12.7 million for the third quarter of 2009.

GAAP income from operations for the third quarter of 2010 was approximately $0.33 million compared with a loss of $1.81 million in the third quarter of 2009.  Non-GAAP income from operations, which excluded stock-based compensation expenses, was $0.83 million for the 2010 third quarter, compared with a non-GAAP loss of $0.17 million for the comparable period of 2009.

GAAP net income attributable to China Finance Online for the third quarter of 2010 was $1.35 million compared with a net loss of $1.03 million in the 2009 third quarter. Diluted GAAP net earnings per ADS attributable to China Finance Online were $0.06 for the third quarter of 2010. Non-GAAP net income attributable to China Finance Online, which excluded the stock-based compensation expenses of $0.5 million, was $1.85 million for the 2010 third quarter, compared with a non-GAAP net income of $0.60 million for the same quarter of 2009. Diluted Non-GAAP net earnings per ADS attributable to China Finance Online were $0.08 for the third quarter of 2010. Total diluted outstanding ADSs were 22,970,713 at the end of September 2010.

As of September 30, 2010, total cash and cash equivalents and restricted cash were $104.2 million. As of September 30, 2010, accounts receivable was $76.4 million, compared with $5.4 million as of December 31, 2009. Accounts receivable resulting from IPO financing and margin business associated with Daily Growth, the Company's Hong Kong brokerage firm, amounted to $71.4 million. Remainder of the accounts receivable was mainly generated from the web portals' advertisement business and Daily Growth's settlement operation.  

The higher accounts receivable during the third quarter was mainly due to increase in IPO financing. As the IPO activities remain vibrant in the Hong Kong market, Daily Growth has been providing clients with IPO financing service utilizing both internal capital and bank loans. Due to the short duration of IPO subscription period, accounts receivable generated as a result of IPO financing usually can be collected shortly after the initial transaction date. Accounts receivable generated from IPO financing as of the September quarter end have been collected by the beginning of October. Related bank loans have been repaid. Daily Growth strictly enforces client screening and risk management. As of today, there has been no bad debt resulting from IPO financing and margin business since the acquisition of Daily Growth.

Total China Finance Online's shareholders' equity was $104.9 million as compared with $97.4 million as of December 31, 2009.

The combined current and non-current deferred revenues at the end of the third quarter of 2010, which represented prepaid service fees made by customers for subscription services that have not been rendered as of September 30, 2010, were $41.9 million.

Nine Month Results

Total net revenues for the first nine months ended September 30, 2010, increased by 16.4% year-over-year to $44.9 million from $38.6 million in the first nine months of last year. Gross profit for the first nine months of 2010, was $38.8 million, up 18.5% from the gross profit of $32.7 million in the same period last year. Gross margin was 86.3% for the first nine months of 2010, compared with 84.8% in the comparable period in 2009. Net income attributable to China Finance Online for the nine months of 2010, was $1.9 million, or diluted earnings per ADS of $0.08, compared with a net loss of $3.6 million, or diluted net loss per ADS of $0.17 during the first nine months of 2009. Excluding stock-based compensation, non-GAAP net income attributable to China Finance Online for the first nine months of 2010 was $5.8 million, or non-GAAP diluted earnings per ADS of $0.26, compared with a non-GAAP net income of $1.5 million, or non-GAAP diluted per ADS of $0.07 during the first nine months of 2009.  

Business Outlook

The Company reiterates its expectation to increase the registered user accounts to 20 million by year end 2010, up 43% from 14 million at the year end of 2009, and up 82% from 11 million at the year end of 2008, respectively.

The Company updated its annual guidance for the year 2010 and expects net revenues to exceed $59 million. The Company also updated its guidance of annual non-GAAP net income attributable to China Finance Online, which excluded stock-based compensations, to exceed $6.0 million.

The above forecast reflects the Company's current views, which are subject to change. A number of important factors including, but not limited to, fluctuations in the Chinese stock market, could cause the actual results to differ materially from those contained in the above guidance.

"We remain cautious about the outlook of the fourth quarter as investor confidence is far from full recovery due to the sluggish global growth and the fluid domestic macroeconomic conditions. These mixed economic data and investors' cautious sentiment may form some headwind to our subscription business growth in the near term. However, in the long run, the Chinese market will continue to attract more individual and institutional investors within and beyond Mainland China. As investors are waiting for the return of bull market, we are taking advantage of this period to streamline our operations and enhance our robust online presence, superior product portfolio, and high-quality financial database, which will further extend our market leadership," Mr. Zhao concluded.

Implementation of "Provisional Regulations on Securities Investment Advisory" and Its Impact on Our Business  

In October 2010, the China Securities Regulatory Commission (the "CSRC") promulgated the "Provisional Regulations on Securities Investment Advisory" and "Provisional Regulations on Issuance of Securities Research Reports" (collectively the "New Provisional Regulations"). The New Provisional Regulations will become effective on January 1, 2011.

Firstly, the New Provisional Regulations will regulate securities advisory software business (as defined below) and securities research reports issuance activities. "Provisional Regulations on Securities Investment Advisory" expressively states that business of providing securities advisory or other similar service through software tools or any other terminal equipment ("securities advisory software business") should be subject to regulation by CSRC. According to the New Provisional Regulations, securities advisory software business should be regarded as securities investment advisory business and should be subject to laws and regulations with respect to securities investment advisory. Therefore, providers of such services should obtain securities investment advisory license which we have acquired already.

Secondly, "Provisional Regulations on Securities Investment Advisory" allows securities investment advisory institutions to provide, subject to regulatory requirements, advices on specific securities and related investment products to assist investors in making investment decisions and receive considerations from such investors. We believe it will be advantageous for us to expand into new investment areas and meet the various needs in investment advisory services resulting from China's fast-growing number of individual investors.  

Lastly, the New Provisional Regulations will improve the competition landscape of the securities advisory software industry, though the regulatory effects will materialize gradually. The New Provisional Regulations will eliminate unlicensed participants which supply counterfeit, illegal or shoddy products or services and will improve order in the market through enhanced regulations. The New Provisional Regulations indicates the government's determination to standardize the industry.  Ultimately, the New Provisional Regulations will restrict the activities of those participants without licenses and thus benefit industry leaders, though a satisfactory result of the regulation may appear gradually over a period of time.

Conference Call Information

The Company will host a conference call and a simultaneous webcast, on November 29, 2010 at 8:00 p.m. Eastern Time/November 30, 2010 9:00 a.m. Beijing Time. Interested parties may participate in the conference call by dialing approximately five to ten minutes before the call start time at U.S. Toll Free Number +1-866-369-4113, Hong Kong Number +800-967-659, Singapore Number +800-616-2160, or China Toll Free Landline Number +1080-0361-0133 (China South) +1080-0611-0113(China North), and pass code for all regions is 635513.

A replay of the conference call will be available shortly after the conclusion of the event through 11:00 p.m. Eastern Time on December 6, 2010 (or 12:00 p.m. December 7, 2010 Beijing Time). The dial-in details for the replay: U.S. Toll Free Number +1-866-572-7808, Singapore Number +800-101-2157 or China Toll Free Number 800-876-5013, Hong Kong & all other countries Dial Number +852-3012-8000. Access code: 635513.

The conference call will be available on webcast live and replay at: http://tinyurl.com/3989euk

About China Finance Online

China Finance Online Co. Limited is the technology-driven, user-focused market leader in China in providing vertically integrated financial services and products including news, data, analytics and brokerage through web portals, software systems, and mobile handsets. Through its web portals, www.jrj.com and www.stockstar.com, the Company provides individual users with subscription-based service packages that integrate financial and listed-company data, information and analytics from multiple sources with features and functions such as data and information search, retrieval, delivery, storage and analysis. These features and functions are delivered through proprietary software available by download, through the internet or through mobile handsets. Through its subsidiary, Genius, the Company provides financial information database and analytics to institutional customers including domestic securities and investment firms. Through its subsidiary, Daily Growth, the Company provides securities brokerage services for stocks listed on Hong Kong Stock Exchange.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the quotations from management in this press release and the Company's strategic operational plans and business outlook, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. The Company believes that the Chinese economy continues to expand; however, the expansion may be uneven with certain sectors being affected more than others with resulting volatility in the Chinese equity market which could influence the Company's operating results in the coming quarters. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

Non-GAAP Measures

To supplement the unaudited condensed consolidated financial information presented in accordance with Accounting Principles Generally Accepted in the United States of America ("GAAP"), the Company uses non-GAAP measures of income from operations, net income, diluted net income per ADS, which are adjusted from results based on GAAP to exclude the stock-based compensation expenses due to the adoption of authoritative pronouncement, which became effective on January 1, 2006. The non-GAAP financial measures are provided to enhance the investors' overall understanding of the Company's current and past financial performance in on-going core operations as well as prospects for the future. These measures should be considered in addition to results prepared and presented in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Management uses both GAAP and non-GAAP information in evaluating and operating business internally and therefore deems it important to provide all of this information to investors. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliation of the Company's GAAP financial measures to Non-GAAP financial measures" set forth at the end of this release.

Tables follow

(a) The adjustment is for share-based compensation expenses.

SOURCE China Finance Online Co., Ltd.