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ChinaNet Online Holdings Reports Third Quarter 2012 Financial Results

ChinaNet Online Holdings Reports Third Quarter 2012 Financial Results

  Reiterates FY2012 Revenue and Net Income Guidance of $42 Million and $3.1
                            Million, Respectively

 Management to Host Conference Call on Wednesday, November 21^st at 8:30 a.m.
                                 Eastern Time

BEIJING, Nov. 20, 2012 (GLOBE NEWSWIRE) --ChinaNet Online Holdings, Inc.
("ChinaNet" or the "Company"), (Nasdaq:CNET), a leading B2B (business to
business) Internet technology company providing online-to-offline ("O2O")
sales channel expansion services for small and medium-sized enterprises (SMEs)
and entrepreneurial management and networking services for entrepreneurs in
the People's Republic of China, today announced financial results for the
third quarter of 2012.

Summary Financials

Third quarter 2012 Results (USD) (Unaudited)

                                            Q3 2012       Q3 2011      CHANGE
Sales                                        $10.3 million $6.4 million +60%
Gross Profit                                 $4.1 million  $3.0 million +37%
Gross Margin                                 40.1%         46.7%        -14%
Net Income Attributable to Common            $1.2 million  $1.0 million +19%
Stockholders
EPS (Diluted)                                $0.05         $0.06        -17%

Third quarter 2012 Financial Results

Revenues increased by $3.9 million to $10.3 million for the three months ended
September 30, 2012 compared to the three months ended September 30, 2011,
representing a 60% increase.

Mr.Handong Cheng, Chairman and CEO of the Company stated, "We made further
progress expanding our service offerings and diversifying our customer base.
For example, brand management and sales channel building, which we introduced
five quarters ago, has grown its sales by approximately 200% in the first nine
months of 2012. We believe that these services provide us with a growing base
of customers to whom we can sell additional value-added services once the
economy in China improves. Furthermore, we will continue to make prudent
acquisitions of business and technology, such as our acquisition of Sou Yi
Lian Mei, that broaden our technology depth, service portfolio or client
base."

Third quarter 2012 Revenue Breakdown by Business Unit (USD in thousands)

                                    Q3 2012 %   Q3 2011 %    % Change
Internet Advertisement               $5,650  55% $3,860  60%  +46%
TV Advertisement                     $3,238  31% $1,972  31% +64%
Bank Kiosk                           $72     1%  $140    2%   -49%
Brand Mgmt. & Sales Channel Building $1,327  13% $446    7%   +198%

Revenue from Internet advertisements for the three months ended September 30,
2012 increased by 46% to $5.7 million compared to the three months ended
September 30, 2011, primarily due to the additional revenues from the
acquisition of 51% of the equity interests of Sou Yi Lian Mei ("SOOE") in
December 2011. Sales of brand management and sales channel building services
increased 198% to $1.3 million for the three months ended September 30,
2012.This increase was due to an increase in the average advertising spending
per customer from larger-sized clients. TV advertising revenues increased from
$2.0 million in the third quarter of 2011 to $3.2 million in the third quarter
of 2012.

Total cost of revenues increased to $6.2 million for the three months ended
September 30, 2012 from $3.4 million for the same period in 2011. The increase
in total cost of revenues for the three months ended September 30, 2012 was
primarily due to the significant increase in costs associated with the TV
advertising business segment and the increase in internet resources costs
incurred by SOOE in connection with the internet advertising and marketing
services it provided for the three months ended September 30, 2012.

Gross profit for the three months ended September 30, 2012 was $4.1 million,
up 37% from $3.0 million in the same period one year ago. Gross margin was
40.1%, an improvement from 28.7% in the second quarter of 2012 and down from
46.7% in the third quarter of 2011.

Operating expenses for the three months ended September 30, 2012 were
approximately $2.3 million, representing an increase of 25% from $1.8 million
in the comparable period in 2011. General and administrative expenses
increased by $0.4 million to $1.3 million due to higher salaries and benefits
expenses and higher amortization expenses of intangible assets identified in
the SOOE acquisition. Selling expenses increased 11% year-over-year to $0.6
million as a result of higher salaries and benefits expenses due to inclusion
of SOOE and other expansion of our sales department.

The Company generated $1.9 million of operating income in the three months
ended September 30, 2012 compared to $1.2 million in the same period one year
ago. Operating margin was 18.2% compared to 18.5% in the same period one year
ago.

Net income attributable to common stockholders for the three months ended
September 30, 2012 was $1.2 million and earnings per share was $0.05, compared
to $1.0 million and $0.06 for the three months ended September 30, 2011,
respectively. The weighted average shares outstanding for the three months
ended September 30, 2012 and 2011 was 22.2 million shares and 18.6 million
shares, respectively.

Year to date 2012 Results (USD) (Unaudited)

                                        YTD 2012      YTD 2011         CHANGE
Sales                                    $38.3 million $22.5 million    +70%
Gross Profit                             $10.3 million $13.7 million    -25%
Gross Margin                             26.8%         60.6%            -56%
Net Income Attributable to Common        $1.7 million  $6.5 million     -73%
Stockholders
Adjusted Net Income Attributable to      $1.7 million  $6.3 million^(1) -73%
Common Stockholders
EPS (Diluted)                            $0.08         $0.34            -76%
Adjusted EPS (Diluted)                   $0.08         $0.33^(1)        -76%

(1) Non-GAAP adjusted net income attributable to common stockholders and EPS
exclude a $0.23 million non-cash gain on deconsolidation of a subsidiary in
the nine month period ended September 30, 2011.

Nine months Ended September 30, 2012 Revenue Breakdown by Business Unit (USD
in thousands)

                                    YTD 2012 %   YTD 2011 %    % Change
Internet Advertisement               $15,353  40% $16,434  73%  -7%
TV Advertisement                     $19,751  52% $4,742   21% +317%
Bank Kiosk                           $214     1%  $415     2%   -48%
Brand Mgmt. & Sales Channel Building $3,031   8%  $943     4%   +221%

Net revenues for the nine months ended September 30, 2012 increased 70% to
$38.3 million compared to $22.5 million for the nine months ended September
30, 2011. Higher revenues from TV advertisement and brand management and sales
channel building services offset lower revenues in Internet advertising and
the bank kiosk business.

Total cost of revenues increased to $28.1 million for the nine months ended
September 30, 2012 from $8.9 million for the same period in 2011. The increase
of total cost of revenues for the nine months ended September 30, 2012 was
primarily due to the significant increase in costs associated with the TV
advertising business segment.

Gross profit for the nine months ended September 30, 2012 was $10.3 million
compared to $13.7 million in the same period a year ago. Gross margin
decreased to 26.8% from 60.6% for the same period in 2011 as a result of the
significant increase in revenues from TV advertising, which is a lower margin
business. Revenues from TV advertising accounted for approximately 52% of
total revenues in the nine months ended September 30, 2012 compared to 21% for
the same period of 2011.

Operating expenses for the nine months ended September 30, 2012 were
approximately $7.5 million, representing an increase of 24% from $6.0 million
in the comparable period in 2011. The primary reason for the year-over-year
increase was higher amortization expenses of intangible assets identified in
the SOOE acquisition and allowance for doubtful debts provided for the nine
months ended September 30, 2012. Selling expenses decreased 7% year-over-year
to $2.0 million as the Company reduced brand building investments in the first
nine months of 2012 in response to the slowdown in small business activity in
China.

Operating income in the nine months ended September 30, 2012 was $2.8 million,
representing an operating margin of 7.3% compared to $7.6 million and 33.9%,
respectively, in the same period one year ago.

GAAP net income attributable to common stockholders for the year to date of
2012 was $1.7 million and earnings per share was $0.08 compared to $6.5
million and $0.34 for the year to date of 2011, respectively. Non-GAAP
adjusted net income attributable to common stockholders and earnings per share
for the year to date of 2011 were $6.3 million and $0.33, respectively. The
weighted average shares outstanding for the first nine months of 2012 and 2011
was 22.2 million shares and 20.3 million shares, respectively.

Balance Sheet and Cash Flow

The Company had $8.5 million in cash and cash equivalents as of September 30,
2012, compared to $10.7 million as of December 31, 2011, working capital of
$23.7 million, compared to $27.0 million as of December 31, 2011, and a
current ratio of 2.8 to 1 compared 4.5 to 1 as of December 31, 2011. Total
shareholders' equity of ChinaNet was $42.9 million at September 30, 2012
compared to $41.7 million at December 31, 2011.

The Company had cash flow from operations of $2.5 million for the first nine
months of 2012.

Guidance for 2012

Management reiterates its full year 2012 forecasts of revenues to be at least
$42 million and net income of at least $3.1 million.

Business Updates

ChinaNet attended the 2012 Shanghai International Franchise Exhibition from
September 15, 2012 to September 17, 2012. The Exhibition was attended by over
30,000 business representatives, entrepreneurs and franchisees.

On September 17, 2012, the Company announced its purchase of the remaining 49%
equity interest in Sou Yi Lian Mei Network for approximately $6.5 million in
cash. The acquisition broadens the Company's client base to smaller startup
businesses that are growing quickly. Founded in 2007, Sou Yi Lian Mei Network
provides online advertising and marketing services to small businesses in
China.

Liansuo.com introduced a new cloud-based software system that allows sales
channel partners to reach businesses more efficiently by converting all
incoming calls to a toll free telephone number starting with the "400" prefix
to the party they are trying to reach. ChinaNet expects the new cloud-based
software system to drive additional spending for value-added services on
Liansuo.com.

The Company's board of directors approved a $1 million share repurchase
program on October 15, 2012 to be executed over the next twelve months at the
Company's discretion.

Conference Call

Date:                   Wednesday, November 21, 2012
Time:                   8:30 a.m. Eastern Time
Conference Line (U.S.): 1-877-317-6776
International Dial-In:  1-412-317-6776
Conference ID:          10021620
Webcast:                http://webcast.mzvaluemonitor.com/Home/Login/647

A power point presentation will be available for downloading on the date of
the conference call on ChinaNet's corporate website www.chinanet-online.com;
under Investor Relations-News/Events-Events and Presentations.

Please dial in at least 10 minutes before the call to ensure timely
participation.

A playback of the call will be available until 9:00 a.m. Eastern Time on
December 3, 2012. To listen, call 1-877-344-7529 within the United States or
1-412-317-0088 when calling internationally. Please use the replay pin number
10021620.

About ChinaNet Online Holdings, Inc.

ChinaNet Online Holdings, Inc., a parent company of ChinaNet Online Media
Group Ltd., incorporated in the BVI, is a leading business to business
Internet technology company focusing on providing online-to-offline sales
channel expansion service for small and medium-sized enterprises and
entrepreneurial management and networking service for entrepreneurs in China.
Founded in 2003 and based in Beijing, PRC, the Company's services include its
28.com portal to connect SME franchisors with new franchisees, Internet
advertising and marketing with other value-added communication channels, brand
management and sales channel solutions, and cloud-computing based management
tools, expected to be officially commercialized in 2012. Website:
http://www.chinanet-online.com.

About Non-GAAP Financial Measures

To supplement the unaudited interim consolidated statement of income and
comprehensive income presented in accordance with GAAP, we are also providing
non-GAAP measures of income before income tax expenses, equity method
investments and noncontrolling interests, net income, net income attributable
to us, net income attributable to our common stockholders and basic and
diluted earnings per share for the nine months ended September 30, 2011, which
are adjusted from results based on GAAP to exclude the non-cash gain
recognized on deconsolidation of a subsidiary incurred during the nine months
ended September 30, 2011. For the nine months ended September 30, 2012 and for
the three months ended September 30, 2012 and 2011, there is no non-cash
income or expenses from nonrecurring transaction under non-GAAP measures. The
non-GAAP financial measures are provided to enhance the investors' overall
understanding of our current 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.We use both GAAP and
non-GAAP information in evaluating our operating business results internally
and therefore deemed it important to provide all of this information to
investors.

The following table presents reconciliations of our non-GAAP financial
measures to the unaudited interim consolidated statements of income and
comprehensive income for the nine months ended September 30, 2011 (all
amounts, except number of shares and per share data, are presented in
thousands of US dollars):

                                                      Nine Months Ended
                                                      September 30, 2011
                                                      GAAP        NON GAAP
                                                      US$         US$
                                                      (Unaudited) (Unaudited)
                                                                 
Income from operations                                 $7,642      $7,642
Other income (expenses):                                          
Interest income                                        9           9
Gain on deconsolidation of subsidiaries                232         -
Other income                                           5           5
                                                      246         
                                                                 14
Income before income tax expense, equity method        7,888      
investments and noncontrolling interests
Adjusted income before income tax expense, equity                 7,656
method investments and noncontrolling interests
Income tax expense                                     861         861
Income before equity method investments and            7,027       
noncontrolling interests
Adjusted income before equity method investments and              6,795
noncontrolling interests
Share of losses in equity investment affiliates        (180)       (180)
Net income                                             6,847       
Adjusted net income                                               6,615
Net loss attributable to noncontrolling interest       96          96
Net income attributable to ChinaNet Online Holdings,   6,943       
Inc.
Adjusted net income attributable to ChinaNet Online               6,711
Holdings, Inc.
Dividend for series A convertible preferred stock      (407)       (407)
Net income attributable to common stockholders of      $6,536      
ChinaNet Online
Adjusted net income attributable to common                        $6,304
stockholders of ChinaNet Online
                                                                 
Earnings per common share-Basic                        $0.37       
Adjusted earnings per common share-Basic                          $0.35
                                                                 
Earnings per common share-Diluted                      $0.34      
Adjusted earnings per common share-Diluted                        $0.33
                                                                 
Weighted average number of common shares outstanding:             
Basic                                                  17,806,818  17,806,818
Diluted                                                20,265,764  20,265,764

Safe Harbor

This release contains certain "forward-looking statements" relating to the
business of ChinaNet Online Holdings, Inc., which can be identified by the use
of forward-looking terminology such as "believes," "expects," "anticipates,"
"estimates" or similar expressions. Such forward-looking statements involve
known and unknown risks and uncertainties, including business uncertainties
relating to government regulation of our industry, market demand, reliance on
key personnel, future capital requirements, competition in general and other
factors that may cause actual results to be materially different from those
described herein as anticipated, believed, estimated or expected. Certain of
these risks and uncertainties are or will be described in greater detail in
our filings with the Securities and Exchange Commission. These forward-looking
statements are based on ChinaNet's current expectations and beliefs concerning
future developments and their potential effects on the company. There can be
no assurance that future developments affecting ChinaNet will be those
anticipated by ChinaNet. These forward-looking statements involve a number of
risks, uncertainties (some of which are beyond the control of the Company) or
other assumptions that may cause actual results or performance to be
materially different from those expressed or implied by such forward-looking
statements. ChinaNet undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities
laws.

                            -- FINANCIAL TABLES –


CHINANET ONLINE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for number of shares and per share data)
                                                                
                                                  September 30, December 31,
                                                  2012           2011
                                                  (US $)         (US $)
                                                  (Unaudited)    
Assets                                                           
Current assets:                                                  
Cash and cash equivalents                         $8,513         $10,695
Accounts receivable, net                           9,822          4,444
Other receivables, net                             5,702          3,631
Prepayment and deposit to suppliers                12,037         15,360
Due from related parties                          321            324
Contingent consideration receivables              160            159
Other current assets                               96             129
Deferred tax assets-current                        95             -
Total current assets                               36,746         34,742
Investment in and advance to equity investment     1,010          1,396
affiliates
Property and equipment, net                        1,654          1,902
Intangible assets, net                             7,408          8,151
Goodwill                                           11,052         10,999
Deferred tax assets-non current                    582            92
Total Assets                                       $58,452        $57,282
                                                                
Liabilities and Equity                                           
Current liabilities:                                             
Accounts payable *                                 $98            $268
Advances from customers *                          839            724
Accrued payroll and other accruals *               483            616
Due to equity investment affiliate *               -              220
Due to related parties *                           -              161
Payable for acquisition *                          5,210          550
Taxes payable *                                    6,272          5,040
Other payables *                                   159            114
Dividend payable                                   -              5
Total current liabilities                          13,061         7,698
Long-term liabilities:                                           
Deferred tax liability-non current *               1,739          1,893
Long-term borrowing from director                  138            137
Total Liabilities                                  14,938         9,728
Commitments and contingencies                                   
Equity:                                                          
Common stock (US$0.001 par value; authorized
50,000,000 shares; issued and outstanding
22,186,540 shares and 22,146,540 shares at         22             22
September 30, 2012 and December 31, 2011,
respectively)
Additional paid-in capital                         19,998         20,747
Statutory reserves                                 2,117          2,117
Retained earnings                                 18,437         16,688
Accumulated other comprehensive income             2,287          2,132
Total ChinaNet Online Holdings, Inc.'s             42,861         41,706
stockholders' equity
Noncontrolling interests                           653            5,848
Total equity                                       43,514         47,554
Total Liabilities and Equity                       $58,452        $57,282


CHINANET ONLINE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except for number of shares and per share data)
                                                               
                              Nine Months Ended      Three Months Ended
                              September 30,           September 30,
                              2012        2011        2012        2011
                              (US $)      (US $)      (US $)      (US $)
                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales                                                           
From unrelated parties         $38,232     $21,987     $10,236     $6,329
From related parties           117         547         51          89
                              38,349      22,534      10,287      6,418
Cost of sales                  28,065      8,868       6,163       3,418
Gross margin                   10,284      13,666      4,124       3,000
                                                               
Operating expenses                                              
Selling expenses               2,042       2,198       640         575
General and administrative     4,320       2,726       1,260       861
expenses
Research and development       1,112       1,100       356         376
expenses
                              7,474       6,024       2,256       1,812
                                                               
Income from operations         2,810       7,642       1,868       1,188
Other income (expenses)                                         
Interest income                123         9           2           5
Gain on deconsolidation of     -           232         -           -
subsidiaries
Other (expenses)/income        (148)       5           (148)       -
                              (25)        246         (146)       5
                                                               
Income before income tax
expense, equity method         2,785       7,888       1,722      1,193
investments and noncontrolling
interests
Income tax expense             196         861         182         107
Income before equity method
investments and noncontrolling 2,589       7,027       1,540       1,086
interests
Share of losses in equity      (394)       (180)       (97)        (75)
investment affiliates
Net income                     2,195       6,847       1,443       1,011
Net (income) / losses
attributable to noncontrolling (446)       96          (223)       100
interests
Net income attributable to     1,749       6,943       1,220       1,111
ChinaNet Online Holdings, Inc.
Dividend of Series A           -           (407)       --          (85)
convertible preferred stock
Net income attributable to
common stockholders of         $1,749      $6,536      $1,220      $1,026
ChinaNet Online Holdings, Inc.
                                                               
Earnings per share                                              
Earnings per common share                                       
Basic                         $0.08       $0.37       $0.05       $0.06
Diluted                        $0.08       $0.34       $0.05       $0.06
                                                               
Weighted average number of common shares outstanding:             
Basic                          22,185,226  17,806,818  22,186,540  18,632,103
Diluted                       22,185,226  20,265,764  22,186,540  18,632,103


CHINANET ONLINE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                                                             
                                              Nine Months Ended September 30,
                                              2012            2011
                                              (US $)          (US $)
                                              (Unaudited)     (Unaudited)
                                                             
Cash flows from operating activities                          
Net income                                    $2,195          $6,847
Adjustments to reconcile net income to net cash provided by    
operating activities
Depreciation and amortization                  1,223           727
Share-based compensation expenses             38              237
Allowances for doubtful debts                  561             -
Share of losses in equity investment           394             180
affiliates
Gain on deconsolidation of subsidiaries        -               (232)
(Loss) / gain on disposal of property and      2               (3)
equipment
Deferred taxes                                 (749)           (65)
Changes in operating assets and liabilities                   
Accounts receivable                            (5,712)         (1,591)
Other receivables                              198             3,768
Prepayment and deposit to suppliers            3,401           (19)
Due from related parties                       4               (195)
Other current assets                           34              (113)
Accounts payable                               (172)           (72)
Advances from customers                        111             (1,320)
Accrued payroll and other accruals             (134)           (67)
Due to director                                -               (82)
Due to Control Group                           -               (559)
Due to related parties                         (162)           (138)
Other payables                                 25              238
Taxes payable                                  1,210           902
Net cash provided by operating activities      2,467           8,443
Cash flows from investing activities                          
Purchases of vehicles and office equipment     (185)           (245)
Purchase of intangible assets                  -               (1,438)
Project development deposit to a third party   (2,450)         -
Cash from acquisition of VIEs                  -               24
Cash effect on deconsolidation of VIEs         (15)            (184)
Long-term investment in and advance to equity  -               (1,703)
investment affiliates
Disposal of investment in and loan repayment   -               2,613
from equity investment affiliate
Payment for acquisition of VIEs                (1,817)         (2,183)
Net cash used in investing activities          (4,467)         (3,116)
Cash flows from financing activities                          
Cash investment contributed by noncontrolling  -               377
interests
Dividend paid to convertible preferred         (5)             (374)
stockholders
Short-term loan borrowed from an equity        316             -
investment affiliate
Short-term loan repaid to a equity investment  (537)           -
affiliate
Net cash used in (provided by) financing       (226)           3
activities
Effect of exchange rate fluctuation on cash    44              360
and cash equivalents
Net (decrease) / increase in cash and cash     (2,182)         5,690
equivalents
Cash and cash equivalents at beginning of the  10,695          15,590
period
Cash and cash equivalents at end of the period $8,513          $21,280

CONTACT: Ted Haberfield, President
         MZ North America, IR
         MZ Group
         Direct: +1-760-755-2716
         Email: thaberfield@mzgroup.us
 
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