Jianpu Technology Inc (JT) 2019 Q1 法說會逐字稿

Hello, and welcome to Jianpu Technology Inc.'s First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

At this time, I would like to turn the conference over to [Luting Liu], Jianpu Investor Relations Manager. Please go ahead.

Thank you, operator. Please note, the discussion today will contain forward-looking statements relating to future performance of the company. This statements are within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Jianpu's business and financial results is included in certain filings of the company with the Securities and Exchange Commission.

The company does not undertake any obligations to update this forward-looking information, except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see our first quarter 2019 earnings press release issued earlier today via wire services and also posted in Investor Relations section of our website.

As a reminder, this conference is being recorded. A live webcast and the replay of this conference call will be available on the Jianpu website at ir.jianpu.ai.

Joining us today on the call from Jianpu's senior management are Mr. David Ye, Co-Founder, Chairman and Chief Executive Officer; and Mr. Oscar Chen, Chief Financial Officer.

I will now turn the call over to Mr. Ye, who will provide an overview of the company as well as the performance highlights of the first quarter. Mr. Chen will then provide details on the company's financial results and business outlook before opening the call for your questions.

Mr. Ye, Please go ahead.

Thank you, [Luting]. Hello, everyone, and thank you for joining us today. We continue to be the largest independent open platform for discovery and recommendation of financial product in China connecting more than 120 million users with over 220,000 financial products and 2,500 financial service providers.

During our last quarter's call, we shared, again, the story of how Jianpu was founded. From that moment, our mission was to become everyone's financial partner, empowering users to make smart financial choices and enabling financial institutions to make better decisions. We couldn't have imagined that technology would converge with the social change and transform financial service industries. Jianpu's business is driving this social change and is improving the lives of many consumers and small businesses who otherwise would have not had the opportunity to benefit from or have access to services from traditional financial systems.

We are also educating the next wave of mobile financial consumers, Generation X and Z, to be able to utilize financial services to their advantage and to do this responsibly. I'm very proud of what we have achieved. Through our continued efforts and investments, we have built a scalable platform model and further proven that profitability is a natural result when it reaches the critical mass with efficiency.

Let me walk you through some of the key business highlights of the first quarter. We delivered another solid quarter showing strong revenue growth across our line of businesses. Revenue from our loan recommendation service increased by 170% year-over-year. Revenues from credit card businesses were up 18% year-over-year and revenue from Big Data Risk Management service grew 518% year-over-year.

To put of our financials into perspective in relation to the industry, most recently, a few commission regulatory announcements were made with regards to how China's own consumer lending industry will be managed. The direction on clarity of these proposed set of rules will create standards and boundaries, rewarding those industry participants with innovative infrastructure, scale and capability to manage user experiences and risk effectively and efficiently.

As the leading independent open platform, we are uniquely positioned to leverage our proprietary data insight and technological capabilities to enable financial service providers to capitalize on this digital wave across the finance industry to drive customer acquisition, improve operating efficiency, credit risk management and optimize decision-making processes.

During the first quarter, we continued to deepen our relationship with financial service providers, while maintaining the largest network of online credit card issuers with 25 credit card banks on our platform. For example, we extended co-branded credit card collaboration with more card issuers, addressing their needs to target a large underserved base of customers such as consumers in secondary and tertiary cities for those never have used credit card before. We launched our multi-prolonged collaboration with a top bank, including offering consultancy services in marketing channel management, training experts on digital marketing practices, Big Data and also designing credit card products.

Regarding SkyKey, our branded Big Data and Risk Management service, we continue to strengthen our corporation with bank partners and other licensed financial institutions. We have recently completed the development of a credit card pre-approval model, which is designed for our regional bank to help optimize its credit decision process leveraging our data and technological strength. This will increase the approval rate as the regional bank moves its credit card businesses from off-line to online. Not only is SkyKey able to provide bank partner with strong solutions, it also helps the online lenders and the consumer finance companies build a risk management engine and optimize online risk management credit models. This helps improve online -- making product decision, reduce default rates, improves operating efficiencies and improve revenues.

In addition to the business update, I would also like to take this opportunity to welcome Oscar, our CFO, to our board, replacing Ms. Fan Yuanyuan. Ms. Fan started to serve as our Director since 2015. It has been a great pleasure working with Ms. Fan over the last few years. On behalf of the board, we thank Ms. Fan for her dedication and contribution to Jianpu. At the same time, we are excited to have Oscar on board. Oscar has extensive experiences and it's the key in areas of management strategy, investment and capital markets as well as his strong leadership will be a good -- very good fit to our board.

As a follow-up to the airing of CCTV 315, we completed our internal review of systems, products and processes. Our mobile app were made available, again, in early May on some application stores and we expect a full launch in June. In the meantime, we continue to drive certain self-imposed improvements to our internal processes such as adopting more stringent turnaround boarding process, while adhering to a stricter platform policies for financial service providers. We have engaged a global consulting firm to assist us in the review of our business process, [contact] industry studies and recommend best practices.

We were invited by the National Internet Finance Association of China, NIFA, Beijing Finance Industry Association to participate in developing standards and defining best practices in terms of the retail financial industry in China and also the financial consumer rights protection and education.

We were also appointed a member of the staff committee of digital association with respect to financial education and consumer rights protection. And at the same time, our regulatory technology, or reg tech team also won a few important mandates to help local Chinese financial regulators establishing assistance to monitor financial products and service online. Being recognized on our platform model and market position by the regulators, we will continue to contribute and lead the initiative of introducing and promoting higher industry standards and best practices.

Jianpu was also recently invited to speak at Financial Services Leadership CEO Roundtable during the 2019 Boao Forum for Asia, and there was a fintech seminar hosted by the institute of financial and national institution of finance and development of China academy of social science.

We are very optimistic about the huge market potential in China's retail finance industry in the [lower] as digitally all-inclusive financial sector is emerging in this nation as cutting-edge technologies like AI, Big Data, cloud computing and in the future, 5G is reshaping the financial service industry, connecting Chinese consumers and SMEs with financial service providers smarter, more efficiently and effectively. With our continued efforts to strengthen our operational capabilities to provide better products and services to our customers, we are optimistic about our growth and our performance for the intermediate to long-term future.

With that, I will now turn the call over to our CFO, Oscar Chen, who will discuss our financial results.

Thank you, David. Hello, everyone. We are pleased to be delivering another strong quarter highlighted by total revenues of approximately RMB 655 million, a 95% year-over-year increase reaching the high end of our guidance by 4% and net income of RMB 19 million and a non-GAAP adjusted net income of RMB 47 million, representing a 22% increase on a sequential basis.

Strategically, we continued executing our growth initiatives, while optimizing our operating efficiencies. Led by the loan recommendation services and a solid contribution from the credit card business, our total recommendation services revenue reported 101% year-over-year increase to RMB 582 million in the first quarter, mainly driven by a 170% year-over-year increase in loan recommendation services, further illustrating the comprehensive scalability of our platform model capturing market demand as well as our execution strength.

As David noted, loan application volume increased 102% year-over-year. The average fee per loan application continues to grow to RMB 17.7 from RMB 15 in the first quarter of 2018. As a result, loan recommendation revenue reached RMB 433 million in this quarter, exhibiting a strong increase of 170% year-over-year.

Combining the credit card business from both recommendation services and advertising, we recorded credit card volume of approximately RMB 1.6 million in the first quarter of 2019. The average fee for credit cards increased to RMB 106 from RMB 95 in the first quarter of 2018. As a result, revenues for credit cards for both recommendation and our advertising services in the first quarter increased by 18% to RMB 170 million from RMB 144 million in the year-ago period.

Among the revenue generated from advertising and marketing services and other services, our Big Data and Risk Management services tracked very strong performance, growing 518% year-over-year as financial service providers continue to engage us for our Big Data and Risk Management services offering.

As we thought ahead not only to grow market share, but educate new and existing segment of the population with regards to financials service product offerings, we look to achieve growth with efficiency in mind. To illustrate, gross margin improved to 91% in the first quarter of 2019 from 85% in the year-ago period. Also, sales and marketing expenses, excluding share-based compensation as a percentage of revenue decreased to 68% in the first quarter of 2019 from 77% in the year-ago period and 71% in the prior quarter.

As we remain strategically focused on strengthening our technological capabilities, while optimizing technology infrastructure, R&D expenses, excluding share-based compensation increased by 87% year-over-year to CNY 78 million. Given the operating leverage we have, the R&D expenses as a percentage of revenue decreased to 11.9% from 12.4% 1-year ago.

Our G&A expenses, excluding share-based compensation, increased to RMB 31 million in the first quarter from RMB 9 million in the same period of 2018. The increase was primarily due to the onetime fee for new business initiatives and increase in payroll costs.

From our discussion above, the scale and efficiency led to profits on both net income and non-GAAP adjusted net income. Non-GAAP adjusted net income reached RMB 47 million in the first quarter of 2019 and net income was RMB 19 million. At the same time, non-GAAP adjusted EBITDA increased to RMB 56 million, up 4% sequentially.

As of March 31, 2019, we maintained a strong balance sheet and cash position with cash and cash equivalents, restricted time deposits and short-term investments of RMB 1.4 billion and working capital of approximately RMB 1.3 billion.

Share repurchase program. Starting from August 2018, our board approved a share repurchase program with a total authorization of USD 30 million. As of May 27, 2019, the company had repurchased approximately USD 26.8 million of shares under this program.

Then outlook. Regarding our guidance for the second quarter of 2019, we anticipate a onetime short-term impact on our financial results as a result of "315 Night". Reason being that, we voluntarily suspended app downloads for our own self review from March 15, and we are now in the process of relaunching towards next months. And at the same time, we are optimizing our efficiency of acquisition, recommendation and operation.

Based on the company's current estimates and the expected short-term impact, we expect total revenues for the second quarter of 2019 to be approximately RMB 360 million to RMB 380 million. Given the optimistic view of the industry in the long run with more regulatory clarity and visibility and our resilient platform model and strong technology infrastructure, we are confident and optimistic about our ability to overcome the temporary challenges in the second half of this year.

With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please go ahead.

(Operator Instructions) The first question comes from John Cai of Morgan Stanley.

I have 3 questions. The first one is on the credit card. I noticed that the volume growth on a year-on-year basis seems to be growing to a single-digit. Just wonder what's the reasons behind that? Is it some growth rate that we are looking for the full year this year? And the second question is on the loan business. I think the average fee per loan obviously have a very strong growth. Just wonder what the trend has been now and what's the outlook for the rest of the year? And the third question is on the outlook or maybe our current operations after the [759]. So I think, we have an outlook revenue number here, just wonder how we think about that is because most of the quarter to date operations -- as in, we don't have our app available for download from the [FPower]. So these revenues is mostly coming from the exclusives and it's quarter-on-quarter down. So the decline is mostly driven by loan or how should we think about the mix between credit cards, loans and others? And operational wise, in terms of [slumps] in the market and I guess we are also scaling back from customer acquisitions. So just maybe some more details on the operational wise after the 315 and how we -- to help us better understand the revenue outlook here? And obviously, we will relaunch the app next month, so what's the revenue outlook may be in a general sense for the second half of this year? Should -- can we go back toward maybe fourth quarter or the first quarter of this year?

Thank you, John, this is David. I will start and -- I guess, 3 questions. I will start -- I will -- answer the first and maybe third one first and then we will talk [operation], okay? First question is about the first quarter credit card business. We grew about 17% year-over-year, that's a 70% increase. And we do expect the growth rate will be higher for the second half of this year. 3 reasons, 17% year-over-year, the 3 reasons, it's a little bit below what we expect. The first one is seasonality. This year, the Lunar calendar of Chinese New Year is February 4 or 5, actually it's like 10 days earlier compared to last year. The Chinese New Year last year was about 14 or 15. So we effectively lost 10 days of business, because credit card business of bank, it would close the book before the Chinese New Year, the business would not resume until 3 or 4 weeks after the New Year's day. So that's the seasonality reason. The second reason, of course, we do have some impact in the "315 Night" about half the amount business -- half amount business in March. We do have some impact on that one. And the third reason for Q1, last year, some of the credit card issuers actually front load their marketing budget in Q1 and this year, due to seasonality, due to the reason, credit card issuer actually did not front load their marketing budget in Q1. As you know, they have budget. They have a high goal of achieving growth of acquiring our businesses, especially in digital channel and online. We know they're going to use the money in Q3 and Q4. So as a team, we know -- we don't have any concern about the credit card business growth for the rest of this year. Thus, the first part is the credit card, maybe I'll start. I would take a step further to the third question about 315, okay. 315 do have impact on our businesses, but we believe this is only a onetime and short-term -- onetime impact. Okay? As we know, we voluntarily suspended of some of the app downloads from major, major stores and also some of the involuntary costs as well. So basically, we -- it took us a couple of weeks to -- we have to go through our internal review process, so we put together more stringent rules in terms of the financial institution listing and also product listing. We also -- basically, we also took some time to communicate with the regulator. We also took time to build the standard and the process to improve the overall process. So that's why we did not relist some of the app until late April or early May. It's still ongoing process. So we expect most of the apps will be fully launched -- fully relisted in June. So that's why we believe -- we expect the impact is a onetime in the short term. We do expect this last one maybe one half, maybe 2 quarters, we should be able to recover in the second half of this year. So I'm saying, give us some time, we will have more time -- give us some time, we will have more data points to evaluate the impact on our growth and profitability. So no matter what this impact -- the onetime impact will be on us in the short term, we are optimistic in the medium to long term and given the resilience of our business model, our technology, our robust infrastructure and also, most importantly, our people, we are able to execute and deliver. So we still are targeting to achieve a full year target for the whole year, but that still depends at this point.

Yes. I think, John, I will answer your second question about the unit price of the loan recommendation services. I think the answer is quite straightforward and short. We raised the price for the loan recommendation services. I mean, of course, it's a -- probably we communicated before for this year, we had a -- we do have a plan to raise the price of the loan recommendation services. So we did it in the earlier first quarter. So this is why you saw the price increase for the loan recommendation services.

Just a quick follow-up on the quarter-to-date operations may be on the sales and marketing. Can we have more details on that? I mean, given the ad suspensions, do we still spend in the sales and marketing or you scale back from there?

Yes, sure, John. I hope we would have more data to answer this question, but at the current stage, we have some -- we do have some app -- of our apps available in some app stores, but we are in the process of fully relaunch towards June. So as of now, I think we have limited data to evaluate the operating -- the sales and marketing efficiency for this quarter. But I want to refer you to the last 2 quarter numbers when you see that we achieved the scale and we improved efficiency in the first quarter last year and in the first quarter this year. As David said, profitability is efficiency gain, operating leverage and profitability is the natural result of the scale and efficiency. I think probably for our next conversation, we will -- when we get a full relaunch of the apps in June and we continue to optimize the -- our strategy in terms of acquisition and recommendation, probably at that time, we will have more data to share with you guys in terms of how we evaluate the efficiency and some other metrics after the 315 issue.

The next question comes from Wendy Chen of Goldman Sachs.

I have 2 questions. First, a follow-up on the second quarter guidance. Just wondering if management can at least share or dissect the year-on-year decline on how -- which part of our business is more impacted by the 315? Then it's more on the loan business or it's on the credit card business? And second question is on the sales and marketing follow-up. So just wondering have the management observed any change in the pricing advertising -- advertisement as we see our -- some advertising platforms have been saying that the price has been relatively muted for the past quarter because of competition. So just wondering have Jianpu observed such a trend in decreased pricing in advertising?

Okay, yes. Thank you, Wendy. Let me take your first question about the second quarter breakdown. I think, so in the second quarter, our guidance for the second quarter, so we are seeing the continued growth of our credit card business and also the -- our marketing and advertising services and other services. These 2 lines, we -- I think both year-over-year and quarter-over-quarter we should be able to contribute -- we should able to drive the growth. I think the -- we will see some downward trend of our loan recommendation business. Reason being still that our suspension of app download, so that to some extent, have some impact on our new user acquisition momentum. So that will be the major impact. So in terms of the number we provided of our guidance, I would say -- I would expect the loan recommendation business would be 30% to 40% of that number. Credit card would be 50% to 60% of the number and the third business line, the sales and marketing -- advertising and marketing and other service, of course, behind -- within that the main driver was the Big Data and the Risk Management services. So that's the third line will contribute around 10% of my total revenue for the second quarter.

Wendy, for your second part of the question was sales and marketing. In Q2, we did observe the market -- actually we are pleased this is more rational. Of course, we were -- I mean, in the past, in Q1, were actually the largest pass on, we were in the market. And of course, less competition that the market actually -- which is against the current, is actually not as competitive as before. We do see some financing trends in the cost side, you asked in Q2 most of our revenue or in the launch side, are either from the key customer of organic traffic or due to our internal like user-generated content or like a completion campaign. So we didn't really spend much money on sales and marketing in Q2, rather revenue, because we could even spend money to pay for the downloads, right? But going forward, as we resume the full operation in June or in Q3 ,of course, we do need to -- number one, we need to still have stringent rules in terms of the undergoing process; number two, we have to make sure we will work with the industry to -- based on the fintech retail financial standard or product standard, we have to make sure the standards are in place; then number three, we need to optimize our recommendation and optimize change and to make sure our users have the best user experience. They have find the right product that can be served or approved by the financial institutions. So that's some of the efficiency, we have to regain that, we will take time. But we do see us -- our efficiency will be fully extended or reserved to the normal time for the second half of this year.

(Operator Instructions) The next question comes from Julie Hou of UBS.

I have 3 questions. First, can you share the revenue split between banks licensed, FSPs and tech-enabled lenders as you did in previous conference calls? And the second question is, in terms of number of loan applications was it the split between consumer loan, SME loan and other loan products as we know big banks as well as small banks are accelerating lending to MSEs (sic) [SME], so I just want to know if our company would benefit from such trends? And do we attract more SME loan products? And my third question is on credit card applicants. How many of them are first-time users and for those who already have credit cards, how many cards do they have on average?

Yes, thank you, Julie. Let me answer your first question regarding the revenue split. So for the first quarter of our total revenues, we have around 40% from the banks, including credit card and the loan recommendations. We have around 30% from the nonbank licensed financial institutions that's mainly the consumer finance company, Internet micro-lending company and local micro-lending company and trust company, that's 30%. So -- and the -- and our revenue exposed to the P2P companies arise a bit in the first quarter of this year. They contribute around 20% of the total revenue. And the remaining, as you would imagine, had come from the advertising services and the Big Data and Risk Management service. So that's a rough breakdown. So I think, the reason behind is that, in the first quarter, we saw strong growth momentum in terms of the loan recommendation. Among that, nonbank licensed financial institutions and the P2P companies are -- play more important roles so -- to grow our loan recommendation business. But we think we still keep a healthier and -- revenue structure from the different type of financial service providers. So that's to your first question. So to your second question, the loan products, yes. SMEs, so far on our platform, we do listed some SME product, but the -- in terms of the number of loan applications towards the SME lending products, it's only a quite small percentage as you can be aware that SME lending for the digitalization of SME lending is far behind and are more complicated than the consumer lending. But because we have very positive policy here, we don't want to promote the SME lending, so we do have some initiatives in terms to expand our SME lending, not our -- the SME lending product on our platform. So we believe digitalization is the trend and it will bring us with the scale and the efficiency. So I think it will be some large more data regarding the SMEs will be available online or through mobile. At that time, we'll see more and more SME lending on our platform. And also, I would share a bit insight about SME lending. So you just imagine the small ticket size SME lending, given the traditional banks, their capability, their cost of structure probably it's not easy for them to do the SME lending directly, probably there will be some third-party players like us, like other supply chain loan facilitation model. The guys owns the data, owns the data of the SMEs may be able to play an important role on the SME lending.

Yes. I think, it's putting the market into perspective, we do see like the auto loan markets, high growth, getting more digital and more decisions will be made leveraging data, leveraging online, leveraging AI. And of course, SME lending, government actually has asked the financial institutions, especially banks, to reserve more capital on SME lending. We see that as a high-growth market and supply chain management squamation that you have the other side of the balance sheet are the wealth management and insurance. We haven't talked about that. I mean, of course, the insurance market has high potential. The wealth management, we are seeing some regulation, so basically relaxed, the KYC process of opening like money market fund or the wealth management fund online. So we definitely see opportunities of the growth in those segments in the financial services industry. But, of course, the challenge of regulatory side, number one, number two, if regularly -- if those products can be sold online and also how technology will drive better user experience and making the product can be serviced online. So that is the key kind of hurdle, but we do see opportunities in those segments.

And Julie, back to third question regarding the credit card user profile of our -- on our platform, firstly, I -- we don't have the full picture of the -- whether it's a first time card user or most card user. But we -- through our communication with the banks, we guess our most valued proposition to the credit card issuer is that we can bring the underbanked population to them. That means, the majority of the users part of our platform would be the first card user. But secondly, I want to emphasize, second card or third card is not something we should be afraid of or we should be alert because you're just looking to the numbers of some developed countries. So 4 or 5 cards per capita is still a reasonable number of the developed economy. So in China, I think in certain developed cities, in coastal cities like Shanghai, Beijing and Guangzhou and Jiangsu provinces, I think I believe the credit card applicants there mostly will be the multi-card holder, maybe apply for the second or third credit card. But the credit card comes from the third- and fourth-tier cities, that mostly of them will be the first card applicants. So, yes, I think that's the answer I can provide for now. Probably, we can communicate with the banker more to understand the user profile from their perspective.

(Operator Instructions) And that concludes the question-and-answer session. I would like to turn the conference back to over management for any closing or additional comments.

Thank you, once again, for joining us today. If you have any further questions, please contact us at ir@rong360.com or TPG Investor Relations. Thank you for your attention and we hope you have a wonderful day.

Thank you, everyone.

The conference has concluded. You may disconnect your line at this time. Thank you.