ZW Data Action Technologies Reports Third Quarter and First Nine Months 2020 Unaudited Financial Results

Rhea-AI Summary

ZW Data Action Technologies Inc. (CNET) reported Q3 2020 revenues of $12.30 million, down 20.7% from $15.51 million in Q3 2019, largely due to a decline in Internet advertising amid slow recovery post-COVID-19. The company experienced a gross loss of $0.64 million, with a gross margin of -5.2%. Operating loss reached $1.40 million, worsening from $0.28 million year-on-year. Net loss attributable to CNET increased to $1.33 million, or $0.06 per share, compared to a loss of $0.39 million ($0.02 per share) in Q3 2019. Despite the annual decline, revenues improved 18% sequentially from Q2 2020, indicating a potential recovery trend.

Positive

• Sequential revenue growth of 18% from Q2 2020.
• New strategic initiatives to pursue growth and profitability.

Negative

• Year-over-year revenue decline of 20.7%.
• Gross loss of $0.64 million compared to a profit of $0.89 million in Q3 2019.
• Net loss attributable to CNET increased by 243.6% year-over-year.

BEIJING, Nov. 13, 2020 (GLOBE NEWSWIRE) -- ZW Data Action Technologies Inc. (Nasdaq: CNET) (the "Company"), an integrated online advertising, precision marketing, data analytics and other value-added services provider serving enterprise clients, today announced its unaudited financial results for the three and nine months ended September 30, 2020.

Third Quarter of 2020 Financial Highlights

		For the Three Months Ended September 30,
($ millions, except per share data)		2020			2019			% Change
Revenues		$12.30			$15.51			-20.7%
Gross profit (loss)		($0.64)			$0.89			-171.9%
Gross margin		-5.2%			5.8%			-11pp*
Loss from operations		($1.40)			($0.28)			-410.5%
Operating loss margin		-11.4%			-1.8%			-9.6pp
Net loss attributable to CNET		($1.33)			($0.39)			-243.6%
Loss per share		($0.06)			($0.02)			-200.0%
*pp: percent points

• Revenues decreased by 20.7% to $12.30 million for the third quarter of 2020, primarily due to the decrease in revenues from our Internet advertising and distribution of the right to use search engine marketing service business categories, as a result of the slow recovery after the COVID-19 outbreak.
• Gross loss was $0.64 million with a gross loss margin of 5.2% for the third quarter of 2020.
• Loss from operations was $1.40 million for the third quarter of 2020, compared to $0.28 million for the same period of last year, primarily attributable to the decrease in gross profit, which was partially offset by the decrease in operating expenses.
• Net loss attributable to CNET was $1.33 million, or loss per share of $0.06, for the third quarter of 2020, compared to net loss of $0.39 million, or loss per share of $0.02, for the same period of last year.

“Despite continued decrease on a year-over-year basis, our third quarter revenues increased 18% sequentially and almost tripled from the trough level in the first quarter, highlighting the continuing post-pandemic recovery trend. Looking ahead, with restoring growth and profitability remaining a challenge for us in the near-term, we are actively pursuing new initiatives, opportunities, and strategic alternatives to right the ship,” said Mr. Handong Cheng, Chairman and Chief Executive Officer of ZW Data Action Technologies.

Third Quarter 2020 Financial Results

Revenues

		For the Three Months Ended September 30,
		2020		2019		% Change
- Internet advertising and related data service		2,429		3,949		-38.5%
- Distribution of the right to use search engine marketing service		8,706		11,554		-24.6%
- Data and technical services		300		5		NM
Internet advertising and related services		11,435		15,508		-26.3%
Ecommerce O2O advertisement and marketing services		269		0		NM
Technical solution services		600		0		NM
Total revenues		12,304		15,508		-20.7%

For the third quarter of 2020, revenues decreased by $3.20 million, or 20.7%, to $12.30 million from $15.51 million for the same period of last year. The decrease in revenues was primarily attributable to the decrease in revenues from the Internet advertising and distribution of the right to use search engine marketing service business categories, as a result of slow business recovery after the COVID-19 outbreak during the first quarter of 2020.

Cost of revenues

		For the Three Months Ended September 30,
		2020		2019		% Change
- Internet advertising and related data service		1,998		3,669		-45.5%
- Distribution of the right to use search engine marketing service		9,731		10,947		-11.1%
- Data and technical services		265		0		NM
Internet advertising and related services		11,994		14,616		-17.9%
Ecommerce O2O advertisement and marketing services		375		0		NM
Technical solution services		576		0		NM
Total cost of revenues		12,945		14,616		-11.4%

Total cost of revenues decreased by $1.67 million, or 11.4%, to $12.95 million for the third quarter of 2020 from $14.62 million for the same period of last year. The decrease in cost of revenues was primary attributable to the decrease in costs associated with the distribution of the right to use search engine marketing service we purchased from key search engines and cost related to providing Internet advertising services on our ad portals, which was in line with the decrease in the related revenues as discussed above.

Gross profit (loss) and gross profit (loss) margin

Gross loss was $0.64 million for the third quarter of 2020, compared to gross profit of $0.89 million for the same period of last year, which was primarily due to gross loss incurred from our main revenue stream, the distribution of the right to use search engine marketing service business category, as a result of the slow recovery of economy after the COVID-19 outbreak during the first quarter of 2020, which was partially offset by the increase in gross profit generated from Internet advertising business. Gross loss margin was 5.2% for third quarter of 2020, compared to gross profit margin of 5.8% for the same period of last year.

Operating expenses

Sales and marketing expenses decreased by $0.05 million, or 47.7%, to $0.06 million for the third quarter of 2020 from $0.11 million for the same period of last year. The decrease in sales and marketing expenses was mainly attributable to the decrease in performance based salary and bonus expenses, due to the decrease in revenues.

General and administrative expenses decreased by $0.23 million, or 27.5%, to $0.59 million for the third quarter of 2020 from $0.82 million for the same period of last year. The decrease in general and administrative expenses was mainly attributable to the decrease in general departmental expenses, as a result of cost reduction plan executed by management after the COVID-19 outbreak.

Research and development expenses decreased by $0.13 million, or 52.7%, to $0.11 million for the third quarter of 2020 from $0.24 million for the same period of last year. Research and development expenses accounted for 0.9% of total revenues for the third quarter of 2020, compared to 1.5% for the same period of last year.

Operating loss

Loss from operations was $1.40 million for the third quarter of 2020, compared to $0.28 million for the same period of last year. Operating loss margin was 11.4% for the third quarter of 2020, compared to 1.8% for the same period of last year.

Other income (expense), net

Total other expenses decreased to $0.08 million for the third quarter of 2020, compared to $0.13 million for the same period of last year, which was primarily related to change in fair value of warrant liabilities.
   
Net loss attributable to CNET and loss per share

Net loss attributable to CNET was $1.33 million, or loss per share of $0.06, for the third quarter of 2020. This compared to net loss attributable to CNET of $0.39 million, or loss per share of $0.02, for the same period of last year.

First Nine Months 2020 Financial Results

		For the Nine Months Ended September 30,
($ millions, except per share data)		2020				2019				% Change
Revenues		$27.10				$39.53				-31.4%
Gross profit		$0.56				$1.70				-67.3%
Gross margin		2.1%				4.3%				-2.2 pp*
Loss from operations		($4.70)				($2.24)				-110.3%
Operating loss margin		-17.3%				-5.7%				-11.7 pp
Net loss attributable to CNET		($4.61)				($1.91)				-142.0%
Loss per share		($0.22)				($0.12)				-83.3%
*pp: percent points

Revenues

		For the Nine Months Ended September 30,
		2020		2019		% Change
- Internet advertising and related data service		5,679		9,384		-39.5	%
- Distribution of the right to use search engine marketing service		18,004		30,134		-40.3	%
- Data and technical services		900		10		NM
Internet advertising and related services		24,583		39,528		-37.8	%
Ecommerce O2O advertisement and marketing services		1,276		0		NM
Technical solution services		1,245		0		NM
Total revenues		27,104		39,528		-31.4	%

For the first nine months of 2020, revenues decreased by $12.42 million, or 31.4%, to $27.10 million from $39.53 million for the same period of last year. The decrease in revenues was primarily attributable to the decrease in revenues from our Internet advertising and distribution of the right to use search engine marketing service business categories, as a result of the COVID-19 outbreak during the first fiscal quarter and the slow recovery in the second and third quarters of 2020.

Cost of revenues

		For the Nine Months Ended September 30,
		2020		2019		% Change
- Internet advertising and related data service		4,904		8,887		-44.8	%
- Distribution of the right to use search engine marketing service		19,147		28,936		-33.8	%
- Data and technical services		796		5		NM
Internet advertising and related services		24,847		37,828		-34.3	%
Ecommerce O2O advertisement and marketing services		1,125		0		NM
Technical solution services		576		0		NM
Total cost of revenues		26,548		37,828		-29.8	%

For the first nine months of 2020, cost of revenues decreased by $11.28 million, or 29.8%, to $26.55 million from $37.83 million for the same period of last year, which was primarily due to the decrease in costs associated with the distribution of the right to use search engine marketing service we purchased from key search engines and cost related to providing Internet advertising services on our ad portals, which was in line with the decrease in the related revenues.

Gross profit and gross margin

Gross profit decreased by $1.14 million, or 67.3%, to $0.56 million for the first nine months of 2020 from $1.70 million for the same period of last year, as a result of the gross loss of our distribution of the right to use search engine marketing service and partially offset by and the increase in gross profit generated from our Internet advertising service, Ecommerce O2O advertising and marketing services and technical solution services during the first nine months of 2020.

Overall gross margin was 2.1% for first nine months of 2020, compared to 4.3% for the same period of last year.

Operating expenses

Sales and marketing expenses decreased by $0.17 million, or 36.4%, to $0.29 million for the first nine months of 2020 from $0.46 million for the same period of last year. The changes in sales and marketing expenses was mainly attributable to the following reasons: (1) staff salary and benefit expenses and general departmental expenses decreased by $0.29 million, due to office shutdown during the first fiscal quarter of 2020, resulted from the COVID-19 outbreak during the period and related epidemic control measures imposed by the local governments where we operate, and slow recovery of business performance after the outbreak in the following quarters; and (2) the increase in share-based compensation expenses of $0.12 million, related to restricted shares granted and issued to our sales staff during the first fiscal quarter of 2020.

General and administrative expenses increased by $1.65 million, or 57.2%, to $4.52 million for the first nine months of 2020 from $2.88 million for the same period of last year. The increases in general and administrative expenses was mainly attributable to the following reasons: (1) the increase in share-based compensation expenses of $1.49 million, due to restricted shares granted and issued in the first fiscal quarter of 2020; and (2) the increase in allowance for doubtful accounts of $0.31 million.

Research and development expenses decreased by $0.16 million, or 26.0%, to $0.44 million for the first nine months of 2020 from $0.60 million for the same period of last year. Research and development expenses accounted for 1.6% of total revenues for the first nine months of 2020, compared to 1.5% for the same period of last year.

Operating loss

Loss from operations increased by $2.47 million, or 110.3%, to $4.70 million for the first nine months of 2020 from $2.24 million for the same period of last year. Operating loss margin was 17.3% for the first nine months of 2020, compared to 5.7% for the same period of last year.

Other income (expense), net

Total other income was $nil for the first nine months of 2020, compared to $0.31 million for the same period of last year, which was primarily related to change in fair value of warrant liabilities.
   
Net loss attributable to CNET and loss per share

As a result of the foregoing, net loss attributable to CNET was $4.61 million, or loss per share of $0.22, for the first nine months of 2020. This compared to net loss attributable to CNET of $1.91 million, or loss per share of $0.12, for the same period of last year.

Financial Condition

As of September 30, 2020, the Company had cash and cash equivalents of $0.50 million, compared to $1.60 million as of December 31, 2019. Accounts receivable, net was $2.28 million as of September 30, 2020, compared to $3.26 million as of December 31, 2019. Working capital was $2.35 million as of September 30, 2020, compared to $4.92 million as of December 31, 2019.

Net cash provided by operating activities was $0.60 million for the first nine months of 2020, compared to net cash used in operating activities of $4.06 million for the same period of last year. Net cash used in investing activities was $1.27 million for the first nine months of 2020, compared to $0.80 million for the same period of last year. Net cash used in financing activities was $0.43 million for the first nine months of 2020, compared to net cash provided by financing activities of $1.96 million for the same period of last year.

Recent Developments

Effective October 14, 2020, the Company changed its corporate name change from “ChinaNet Online Holdings, Inc.” to “ZW Data Action Technologies Inc.”

On August 7, 2020, the Company appointed Mr. Charles Chiu to the position of the Company’s Chief Operating Officer and Mr. Mark Li, the current Chief Financial Officer of the Company, to serve as Secretary of the Company. On the same date, Mr. George Chu resigned from the roles of Chief Operating Officer and Secretary of the Company due to personal reasons. Mr. Chu continued to serve as a director of the Board of Directors of the Company.

About ZW Data Action Technologies Inc.

Established in 2003 and headquartered in Beijing, China, ZW Data Action Technologies Inc. (the “Company”) offers online advertising, precision marketing, data analytics and other value-added services for enterprise clients. Leveraging its fully integrated services platform, proprietary database, and cutting-edge algorithms, ZW Data Action Technologies delivers customized, result-driven business solutions for small and medium-sized enterprise clients in China. The Company also develops blockchain and artificial intelligence enabled web/mobile applications and software solutions for general public, enterprise clients, and government agencies. More information about the Company can be found at: http://www.zdat.com/.

Safe Harbor Statement

This release contains certain "forward-looking statements" relating to the business of ZW Data Action Technologies 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 ZW Data Action Technologies current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting ZW Data Action Technologies will be those anticipated by ZW Data Action Technologies. 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. ZW Data Action Technologies 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.

For more information, please contact:

Sherry Zheng        
Weitian Group LLC
Email: shunyu.zheng@weitian-ir.com
Phone: +1 718-213-7386

ZW DATA ACTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except for number of shares and per share data)
		September 30, 2020			December 31, 2019
		(US $)			(US $)
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	500		$	1,603
Accounts receivable, net of allowance for doubtful accounts of $3,996 and
$3,148, respectively			2,282			3,260
Prepayment and deposit to suppliers			6,301			6,980
Due from related parties, net			58			81
Other current assets, net			961			11
Total current assets			10,102			11,935
Long-term investments			64			35
Operating lease right-of-use assets			4			12
Property and equipment, net			74			78
Intangible assets, net			1,288			1,899
Blockchain platform applications development costs			4,189			3,879
Long-term prepayments			474			-
Deferred tax assets, net			815			713
Total Assets		$	17,010		$	18,551
Liabilities and Equity
Current liabilities:
Short-term bank loan		$	-		$	430
Accounts payable			552			408
Advance from customers			2,822			2,006
Accrued payroll and other accruals			442			491
Taxes payable			3,290			3,214
Lease payment liability related to short-term leases			222			136
Other current liabilities			325			221
Warrant liabilities			103			107
Total current liabilities			7,756			7,013

Long-term liabilities:
Long-term borrowing from a director			129				125
Total Liabilities			7,885				7,138
Commitments and contingencies
Equity:
ZW Data Action Technologies Inc.’s stockholders’ equity
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and
outstanding 21,741,926 shares and 19,629,403 shares at September 30, 2020  and December 31, 2019, respectively)			22				20
Additional paid-in capital			45,569				43,111
Statutory reserves			2,607				2,607
Accumulated deficit			(40,384	)			(35,773	)
Accumulated other comprehensive income			1,371				1,505
Total ZW Data Action Technologies Inc.’s stockholders’ equity			9,185				11,470
Noncontrolling interests			(60	)			(57	)
Total equity			9,125				11,413
Total Liabilities and Equity		$	17,010			$	18,551

ZW DATA ACTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except for number of shares and per share data)
		Nine Months Ended September 30,								Three Months Ended September 30,
			2020				2019				2020				2019
		(US $)				(US $)				(US $)				(US $)
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenues
From unrelated parties		$	27,086			$	39,025			$	12,300			$	15,113
From a related party			18				503				4				395
Total revenues			27,104				39,528				12,304				15,508
Cost of revenues			26,548				37,828				12,945				14,616
Gross profit/(loss)			556				1,700				(641	)			892
Operating expenses
Sales and marketing expenses			293				461				58				111
General and administrative expenses			4,520				2,875				592				817
Research and development expenses			443				599				113				239
Total operating expenses			5,256				3,935				763				1,167
Loss from operations			(4,700	)			(2,235	)			(1,404	)			(275	)
Other income (expenses)
Interest expense, net			-				(33	)			1				(10	)
Other expenses			(4	)			(6	)			(21	)			(2	)
Change in fair value of warrant liabilities			4				351				(64	)			(120	)
Total other income			-				312				(84	)			(132	)
Loss before income tax benefit and noncontrolling interests			(4,700	)			(1,923	)			(1,488	)			(407	)
Income tax benefit			87				10				155				16
Net loss			(4,613	)			(1,913	)			(1,333	)			(391	)
Net loss attributable to noncontrolling interests			2				8				-				3
Net loss attributable to ZW Data Action Technologies Inc.		$	(4,611	)		$	(1,905	)		$	(1,333	)		$	(388	)

Net loss		$	(4,613	)		$	(1,913	)		$	(1,333	)		$	(391	)
Foreign currency translation (loss)/gain			(135	)			97				(203	)			73
Comprehensive loss		$	(4,748	)		$	(1,816	)		$	(1,536	)		$	(318	)
Comprehensive loss attributable to noncontrolling interests			3				6				2				1
Comprehensive loss attributable to ZW Data Action Technologies Inc.		$	(4,745	)		$	(1,810	)		$	(1,534	)		$	(317	)
Loss per share
Loss per common share
Basic and diluted		$	(0.22	)		$	(0.12	)		$	(0.06	)		$	(0.02	)
Weighted average number of common shares outstanding:
Basic and diluted			21,271,301				16,447,233				21,720,259				16,517,440

ZW DATA ACTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
		Nine Months Ended September 30,
		2020					2019
		(US $)					(US $)
		(Unaudited)					(Unaudited)
Cash flows from operating activities
Net loss		$	(4,613	)			$	(1,913	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities
Depreciation and amortization			622					66
Amortization of operating lease right-of-use assets			7		-			88
Share-based compensation expenses			2,066					307
Provision for allowances for doubtful accounts			751					445
Deferred taxes			(87	)				(10	)
Change in fair value of warrant liabilities			(4	)				(351	)
Changes in operating assets and liabilities
Accounts receivable			254					(289	)
Prepayment and deposit to suppliers			1,077					(5,191	)
Due from related parties			24					226
Other current assets			(5	)				11
Long-term prepayments			(375	)				-
Accounts payable			137					(1,946	)
Advance from customers			754					4,151
Advance from a customer, related			-					9
Accrued payroll and other accruals			(55	)				(242	)
Lease payment liability related to short-term leases			81					180
Other current liabilities			(38	)				291
Taxes payable			8					123
Prepaid lease payment			(9	)				(10	)
Net cash provided by/(used in) operating activities			595					(4,055	)
Cash flows from investing activities
Investment to investee entities			(27	)				(36	)
Short-term loan to an unrelated party			(944	)				-
Payment for blockchain platform applications development costs			(302	)				-
Prepayment for software system development			-					(760	)
Net cash used in investing activities			(1,273	)				(796	)
Cash flows from financing activities
Proceeds from issuance of common stock (net of cash offering cost of US$8)			-					2,393
Proceeds from short-term bank loan			-					438
Repayment of short-term bank loan			(429	)				(875	)
Net cash (used in)/provided by financing activities			(429	)				1,956
Effect of exchange rate fluctuation			4					(10	)
Net decrease in cash and cash equivalents			(1,103	)				(2,905	)
Cash and cash equivalents at beginning of the period			1,603					3,742
Cash and cash equivalents at end of the period		$	500				$	837
Supplemental disclosure of cash flow information
Income taxes paid		$	-				$	-
Interest expense paid		$	2				$	36

 

FAQ

What were the revenue figures for ZW Data Action Technologies in Q3 2020?

ZW Data Action Technologies reported revenues of $12.30 million for Q3 2020.

How much did CNET report as net loss for Q3 2020?

CNET reported a net loss attributable of $1.33 million for Q3 2020.

What caused the decline in CNET's revenues in Q3 2020?

The decline was primarily due to reduced revenues from Internet advertising and search engine marketing services as a result of slow recovery from the COVID-19 outbreak.

How does CNET's Q3 2020 performance compare to Q2 2020?

CNET achieved an 18% increase in revenues sequentially from Q2 2020.

What is CNET's loss per share for Q3 2020?

CNET's loss per share for Q3 2020 was $0.06.