Mr. Handong Cheng, Chairman, President, and Chief Executive Officer of ChinaNet, stated, “In the face of epidemic headwinds and resulting macroeconomic uncertainty, ChinaNet delivered a pivotal performance in the full year of 2019 to crucially transition its business via the introduction of new investors and their resources. Consequently, we ramped up our service and technology innovation, expanded our blockchain business development, grew our client base, and bolstered our penetration rates in key markets during the period. As we advance into 2020, we have welcomed two seasoned executives to join our ranks, providing us with further expertise in the technology and healthcare industries and continuing to fuel our business development efforts. Moreover, in order to enhance the reliability of our blockchain services, we also plan to expand our corporate business and technology headquarters to Guangzhou. This move will not only enable us to further consolidate our resources, operations, and technological capabilities, but also broaden our access to a wider pool of manufacturing clients as well as small- to medium-sized business clients.

“As we continuously refine our operations and diversify our service offerings, we are also monitoring the market closely, maintaining a growth mindset, and keeping an eye out for potentially advantageous development opportunities. When the outbreak of COVID-19 significantly impacted the market in the first quarter of 2020, for example, we launched a number of relief measures in support of our existing clients to help them overcome their challenges in operations, business development, and financing. We have also started a strategic business initiative in healthcare industry advertising. Our technical competencies, entrepreneurial business development strategies, formidable team of industry veterans, and new professional talent joining the team will continue to serve as competitive advantages going forward. In light of the Chinese government’s favorable policy towards the development of blockchain technology, we will continue to focus on developing and promoting our blockchain-based platform services and products in the second half of 2020 as planned. We anticipant that this will help us to not only cultivate more sources of recurring revenue, but also bolster our preparations for the expansion into the Southeast Asian market in the near future. The transition of the Company, coupled with its strong technology base, will bring an increasing amount of growth momentum to our business and also enable us to form more partnerships to accelerate our expansion going forward.”

Full Year 2019 Financial Results

TOTAL REVENUES

Total revenues in the full year of 2019 increased by 1.6% to $58.1 million from $57.1 million in the full year of 2018.

Revenues generated from Internet advertising and data service in the full year of 2019 increased by 54.4% to $14.8 million from $9.6 million in the full year of 2018. Such growth was attributable to the Company’s higher sales lead conversion rate and improved advertising and marketing results, resulting from increased investments for marketing precision and enhanced data analysis capabilities.

Revenues generated from the distribution of the right to use search engine marketing service in the full year of 2019 were $41.4 million as compared to $47.4 million in the full year of 2018. The decrease was due to the tightening of credit policies by the Company’s key suppliers, which led to a higher working capital requirement for the same volume of search engine resources in 2019 when compared to the prior year. In response to this credit policy change, the Company has started to require its customers to pay more in advance, strengthened its accounts receivable management process, and actively engaged in negotiations with its key suppliers to secure more favorable credit policies to improve the situation.

COST OF REVENUES AND GROSS PROFIT

Cost of revenues in the full year of 2019 decreased by 3.9% to $52.6 million from $54.7 million in the full year of 2018. This decrease was primarily due to the decreased costs associated with the distribution of the right to use search engine marketing service and TV advertising service, which were partially offset by the increased costs associated with Internet advertising and data service.

Gross profit in the full year of 2019 increased by 127.4% to $5.5 million compared to $2.4 million in the full year of 2018. Gross margin in the full year of 2019 expanded to 9.5% from 4.2% in the full year of 2018. The increase in gross margin was primarily driven by an increase in gross margin rates for both of the Company’s core business lines, Internet advertising and data service and distribution of the right to use search engine marketing service.

OPERATING LOSS

Operating expenses in the full year of 2019 decreased by 57.6% to $7.2 million from $16.9 million in the full year of 2018. As a percentage of total revenues, operating expenses in the full year of 2019 reduced to 12.4% from 29.6% in the full year of 2018.

Sales and marketing expenses in the full year of 2019 decreased by 72.6% to $0.5 million from $2.0 million in the full year of 2018. This decrease was primarily attributable to the decrease in advertising expenses for brand development as well as the Company’s successful execution of cost control initiatives, which led to a reduction in staff salary and benefit expenses as well as other general departmental expenses.

General and administrative expenses in the full year of 2019 increased by 5.3% to $5.8 million from $5.5 million in the full year of 2018. The increase was primarily attributable to the increase in allowance for doubtful accounts due to the uncertainties surrounding future collection caused by the COVID-19 outbreak as well as a slight increase in share-based compensation, which was partially offset by decreased professional service expenses, salary and benefit expenses, and other general office expenses as the Company continued to optimize its cost structures.

Research and development expenses in the full year of 2019 were slightly below $0.9 million, which was stable in comparison to the full year of 2018, during which research and development expenses were slightly above $0.9 million.

In the full year of 2018, the Company incurred a $3.3 million impairment loss in intangible assets and a $5.2 million impairment loss in goodwill. No such impairment loss was recognized by the Company in the full year of 2019.

As a result, operating loss in the full year of 2019 decreased significantly to $1.7 million from $14.5 million in the full year of 2018.

NET LOSS

Net loss attributable to ChinaNet Online Holdings, Inc. in the full year of 2019 was $1.3 million compared to $14.0 million in the full year of 2018.

EBITDA AND ADJUSTED NET INCOME/(LOSS)

For the year ended December 31, 2019, EBITDA loss was US$0.9 million, compared to US$12.8 million in the full year of 2018. EBITDA represents net loss before (i) depreciation and amortization; (ii) interest expense; (iii) interest income; and (iv) income tax expense.

For the year ended December 31, 2019, adjusted net income was US$1.1 million, compared to an adjusted net loss of US$3.7 million in the full year of 2018. Adjusted net income/(loss) represents net income/(loss) before non-cash items, including: (i) depreciation and amortization; (ii) deferred income tax benefit/(expense); (iii) share-based compensation; (iv) bad debt provision; (v) gain from changes in fair value of warrant liabilities; and (vi) impairment on intangible assets, goodwill and equity investments.

BALANCE SHEET

As of December 31, 2019, the Company had cash and cash equivalents of $1.6 million, compared to $3.7 million as of December 31, 2018. Advances from customers grew to $2.0 million as of December 31, 2019, increasing significantly from $1.1 million as of December 31, 2018.

Non-GAAP Disclosure

ChinaNet uses adjusted net income/(loss), a non-GAAP financial measure, in evaluating its operating results as well as for financial and operational decision-making purposes. The Company believes that adjusted net income/(loss) helps to identify underlying trends in its business that could otherwise be distorted by the effect of the expenses and gains that are included in net loss. The Company believes that adjusted net income/(loss) provides useful information about its operating results and enhances investors’ overall understanding of the Company’s past performance and future prospects.

Adjusted net income/(loss) should not be considered in isolation or construed as an alternative to net income/(loss) or any other measure of performance or as an indicator of the Company’s operating performance. Investors are encouraged to review non-GAAP financial measures against the most directly comparable GAAP measures. Adjusted net income/(loss) presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company’s financial data. The Company’s financial information should be reviewed in its entirety and is not reliant upon a single financial measure.

About ChinaNet Online Holdings, Inc.

ChinaNet Online Holdings, Inc., a parent company of ChinaNet Online Media Group Ltd., incorporated in the BVI (ChinaNet), is an integrated online advertising, precision marketing and data-analysis and management services platform. ChinaNet provides prescriptive analysis for its clients to improve business outcomes and to create more efficient enterprises. The Company leverages an optimization framework, provided by its comprehensive data-analysis infrastructure, to blend data, mathematical, and computational sciences into an outcome management platform for which it monetizes on a per client basis. ChinaNet uniquely optimizes and prescribes its clients decision making processes based on its proprietary ecosystem. For more information, visit www.chinanet-online.com.

Safe Harbor Statement

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, risks associated with the COVID-19 pandemic outbreak 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.

Investor Relations Contact

ICR, Inc.
Xinran Rao
Tel: +1-646-308-1635
Email: CNET@icrinc.com