Jianpu Technology Inc.

Good day, and welcome to the GenPool Technology first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Colin Chong. Please go ahead, sir.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our first quarter 2022 earnings release were distributed earlier today and is available on our IR website at ir.genpool.ai, as well as on PR News Live services. On the call today from JEMFA Technology, we have Mr. David Yeh, Co-Founder, Chairman, and Chief Executive Officer, and Mr. Oscar Chen, Chief Financial Officer. Mr. Yeh will talk about our operations and company highlights, followed by Mr. Chen, who will discuss the financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and current market and operating conditions. and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control. These risks may cause the company's actual results or performance to differ materially. Further information regarding these and other risks, uncertainties, or factors is included in the company's filings with the USFCC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during the conference call are in Roman B. It is now my pleasure to introduce our co-founder chairman and chief executive officer, Mr. David Yeh. David, please go ahead.

Thank you, Colin. Hello everyone, and thank you for all you for joining us today. During the first quarter, despite the challenging macro environment and the resurgence of COVID in several areas of China, we delivered another strong quarter of growth with the total revenue up 43% year over year. The results were primarily driven by our persistence in pushing forth on our vision to become everyone's financial partner and empowering users and enabling the digital transformation of financial service providers through tech knowledge and product innovation. I will start by going through the key highlights for the first quarter, then share some observations around the current macro and COVID environment and its potential impact on our business. Before turning it over to Oscar to go through the financial performance. First, we ended the quarter with a more diversified and balanced revenue structure, thanks to the growing revenue contribution from our new initiatives. In the first quarter, our revenue continued its growth momentum with a more diversified structure we have 22% revenue from our loan recommendation services, 47% revenue from credit card recommendation services, 10% from data-driven and system-based risk management services, and 21% from advertising marketing services and other services, versus 19%, 54%, 18%, and 9% in the corresponding quarter of 2021, and 21%, 51%, 16%, and 12% in full year 2021. Among the revenue streams, our recommendation business continued to gain market share, with revenue increasing 36% year over year. During the first quarter, we sustained our industry-leading position in the credit card recommendation business we maintained solid relationship with the majority of owner and credit card issuing banks in China. We continue to be the top owner acquisition channel to many of these key banks. As for our new businesses, we have accelerated the deployment of our omni-channel marketing solutions through adjacent category with a large data-rich user base and a great financial need. resulting in significant revenue growth. The revenue for advertising marketing services was 2.5x year-over-year. The growth momentum is further proof of our success by extending our social media and partner programs into non-financial service categories. Second, alongside the recovery of the business, economies of scale kicked in is a clear trend of improvement in efficiency. Anticipating the uncertainties and challenges arising from the macro environment and the regulatory change, we have strived to achieve a balance between growth and efficiency. Our social media and partner program has played an increasingly important role in delivering both growth and efficiency. The ROI or revenue divided by the corresponding cost of acquisition and promotion of a recommendation business improved two percentage points year-over-year and 10 percentage points subsequently. We have also seen a promising trend of the new businesses delivering over 10 percent points ROI improvement quarter-over-quarter. While the scale continued to grow at 103% on the same basis. Third, we have further enhanced our capabilities to enable the digital transformation of the financial industry and other industries. We have seen an increasing demand from financial institutions to acquire, identify, and engage their users across different channels to provide better service and improve users' lifetime value. Our omnichannel marketing solution is well positioned to capture this increasing demand. As an independent third-party open platform, we have already aggregated user acquisition sources from online and mobile media, as well as our proprietary social media and partner programs. We recently started to explore different user acquisition channels through various consumer consumption scenarios, such as travel, e-commerce, lifestyle, et cetera. We believe that such channel expansion and integration will allow us to diversify our user base and further strengthen our omnichannel solutions to enhance the acquisition capability of financial institutions. In addition, The banks have also been increasingly focused on improved user retention and customer loyalty post-acquisition. This brings plenty of business opportunities for us as we explore ways to enhance the operations through our cutting-edge technology and product operational experiences. We have deepened our collaborative relations with existing banks in our partnership network, launching initiatives such as digital promotion activities to improve customer engagement and the cross-sell of different financial products and services, using our suite of digital transformation solutions to help financial institutions improve efficiency and reduce costs. The breakthrough that we have recently done was the establishment of a strategic cooperation with a large telecom to jointly develop a suite of tech solutions and services to target the digital transformation of financial institutions, local or government authorities, and other enterprises. The phase one of corporation will provide supply chain management system and related financial services to small and medium-sized enterprises. We have also been building our pipeline of such strategic corporations, including with the internet platform and the cloud service companies. Finally, we remained very disciplined in executing our cost optimization measures and initiatives, resulting in further optimization of our cost structure and the productivity optimization of our businesses. Our operating losses decreased by 19% year over year, and the non-GAAP adjusted net loss margin further improved by 10% points compared with the same period in 2021. Over the coming quarters, we will remain disciplined. We will maintain the disciplined approach to continuously optimize, and it will be more nimble and agile in our operation. I will now take a few minutes to talk about the latest COVID situation in China and the latest macro environment and regulatory dynamics, as this issue appears to be the top of many investors' minds. With regard to the COVID situation, the resurgence of COVID, which resulted in the multi-city lockdowns that started in March, has impacted consumer confidence and led to a slowdown in the economy. I think there are several moving pieces. On one hand, under the current COVID zero policy, it is expected there will be a continuation of a rolling lockdown across the country. Furthermore, despite the subsequent easing of lockdown in places such as Shanghai and Beijing, our previous experience would tell us that it usually takes some time before business ramps up to its prior level. But on the other hand, as many financial institutions have already begun moving toward digital transformation and using digital operations in the face of COVID. The absolute impact might be smaller. Even some financial institutions can continue their customer acquisition operation through online channels. Hence, I think the overall effect of COVID is relatively short-term and manageable. In terms of our own business, given the face-to-face nature of some of our businesses, we have also sustained some impact due to COVID. Nevertheless, we continue to maintain relationships with our financial institution partners and the regulatory authorities. Given the ongoing trend for digital transformation, we believe once the lockdown is we can continue to cultivate our pipeline for further projects and initiatives. On the macro environment and regulatory front, we continue to be encouraged by recent public comments from regulators and remain optimistic about the future development of the digital economy and the opportunities it brings to us. As many of you know, Since the beginning of the year, the Chinese government has issued statements and policy guidance in support of the digital economy and the platform economy from the very top level. We also have seen policy guidance coming from the China Banking and Insurance Regulatory Commission to support the digital transformation of banking and the insurance industry. With these latest notices, focusing on the importance of tech empowerment for banks to carry out process innovation and business improvement in terms of their capability in response to customers' needs, especially during times where many businesses are affected by the pandemic. In addition, there is a rising focus on supporting 300-plus million potential new urban residents These new residents typically have higher needs and urgent needs for financial product and services, but they don't have the prerequisite documents and credentials to obtain and apply for financial products or receive services from financial institutions. This creates an additional driver for digital transformation as financial institutions seek customized and smarter digital solutions and new risk profiling capability and tools to help these new urban residents to meet their massive financial needs. And lastly, we are beginning to see signs of liquidity being injected into the financial system with the banks receiving guidance from the government to increase their loan balance and the portfolio. We believe the government's measure and initiative will support economy growth and it will bring an increasing digital transformation trend for financial service providers. We will continue our efforts to empower financial institutions' digital transformation and to support the development of China's digital economy. Despite the ongoing uncertainty around COVID-related lockdowns, we remain very confident in the long-term prospects of the sector and the overall industry. We believe the groundwork we have laid and our investments in digital transformation solutions and tools will ultimately deliver greater value to the company and our shareholders and other stakeholders. Lastly, I would like to take this opportunity to announce a change to our leadership team. Mr. Jia Yan Lu will no longer take his current role as chief operating officer of the company from July 1st, 2022. He will continue to serve as director and we will also retain Jia Yan as an advisor until early next year. On behalf of the board and the management team, I would like to express our gratitude to Jia Yan for his dedication and contribution to the company in the past decade. We believe that we will continue to benefit from Jia Yan's expertise and experience as a director and advisor of the company. I will now turn the call over to our CFO, Oscar Chen, who will discuss our financial results. Thank you.

Thank you, David. And hello, everyone. As David mentioned earlier, we delivered a strong financial result with a more balanced revenue structure and modern improvement in the first quarter of 2022. Our first quarter results reflect our persistent efforts in business development and disciplined cost control. Our total revenues for the first quarter of 2022 increased by 42.6% to RMB 207.6 million from RMB 145.6 million in the same period of 2021. Our recommendation business continues to grow and sustain our market position. with total recommendation service revenues increasing by 35.6% to RMB 144.1 million from RMB 106.3 million in the same period of 2022. On the back of the 24.8% and the 65.8% year-over-year increase in credit card and loan recommendation service revenues respectively. The average fee per credit card has a slight increase to RMB 110 in the first quarter of 2022. The average fee per domestic loan application increased by around 4 percent to RMB 11.6 in the first quarter of 2022. The increase in revenue is primarily due to the increase in the number of loan applications and the credit card volume driven by our continued success of omni-channel marketing strategies that attracted a more diversified user base to our platform. Revenues from big data and system-based risk management services decreased by 24.9% to RMB 20.2 million in the first quarter of 2022 from RMB 26.9 million in the same period of 2021. Despite the impact of COVID, We have established and maintained a solid relationship with financial institutions, state-backed credit bureaus, and other ecosystem partners, and are working on several long-term partnerships with telecom operators, internet platforms, and other enterprises. Revenues from advertising and marketing services and other services increased by 248.4% to RMBs. 43.2 million in the first quarter of 2022, from IMB 12.4 million in the same period of 2021, primarily due to the significant growth of insurance brokerage services and the initiatives of other new businesses. As David outlined previously, the growth momentum illustrates our success in extending our social media and partner program into non-financial services categories. Let me now move on to the cost and expenses. Cost of promotion and acquisition mainly consists of the expenditure relating to our marketing efforts and activities, which increased by 63.2% to RMB 149.5 million in the first quarter of 2022, from RMB 91.6 million in the same period of 2021. the increase was in line with our revenue growth from recommendation services, advertising and marketing services, and other services. In the first quarter of 2022, we have seen continuous trend of efficiency improvement. Our eye of recommendation services, advertising and marketing services, and other services have shown encouraging improvements with an increase of 7 percentage points compared with the second half of 2021, reflecting our efforts in improving operational efficiency. At the same time, the ROI improvement also benefited from our growing scale. On a year-over-year basis, the ROI was 5 percentage points lower, which was mainly attributable to the change of revenue mix. The fast-growing new business new businesses took a larger part in our revenue structure, while its ROI was relatively low given the early stage. In the future, we will continue to strive a balance between growth and efficiency. Cost of operations slightly increased by 8.8% to RMB 18.5 million in the first quarter of 2022 from RMB 17 million in the same period of 2021. We continued executing our cost optimization initiatives, which led to a reduction in sales and marketing and R&D expenses. In dollar amount, these expenses decreased by 8.6% and 19.2% respectively in the first quarter of 2022, compared with the same period of 2021. our general and administrative expenses increased slightly in the first quarter of 2022. Measured as percentage of total revenue, sales and marketing, R&D, and GMA expenses in total were 45.4% in the first quarter of 2022, compared with 71.5% in the same period of 2021, a decrease of 26 percentage points. With our continued efforts in optimizing our cost structure and improving the productivity of our businesses, loss from operations was RMB 54.6 million in the first quarter of 2022, compared with RMB 67.1 million in the same period of 2021. Operating loss margin was 26.3% in the first quarter of 2022. compared with 46.1% in the same period of 2021. Our net loss and the non-GAAP adjusted net loss were respectively RMB 53 million and 50.7 million in the first quarter of 2021, compared with RMB 51.3 million and RMB 49.4 million in the same period of 2021. The slight increase of net loss versus improvement in operating loss was mainly attributable to a realized investment gain in the first quarter of 2021, which was a one-off item. Given the growing scale and improving efficiency, our net loss margin and non-GAAP adjusted net loss margin improved by 9.7. and 9.5 percentage points, respectively, compared with the same periods of 2021. As of March 31st, 2022, we maintained a balance sheet with cash equivalents and a short-term liquidity of RMB 685.8 million. With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Thank you. If you would like to ask a question, please press star then 1 on your touch-tone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Today's first question comes from Kevin Lee in Spica Capital. Please go ahead.

Hi, management. Congrats on the great results. Two questions, if I may. First question, the revenue from advertising and marketing service grew strongly this quarter. I'm guessing most of this is coming from the new business initiatives. Is it possible to give a more detailed breakdown of where the growth is coming from and share with us some more color regarding this new business initiatives and your business strategies for these over the coming years? I'm sort of trying to see, get a sense of how big this market is and how it's going to grow going forward. Then on the second question, it's regarding cost. You previously mentioned that you're doing some upfront investment relating to these new businesses. Are these investments still being made, and when do you expect to start to see a more meaningful contribution to the bottom line from these business? And in addition, can you give me a bit more color in terms of your cost optimization program? What are the targets you're trying to achieve, and what will you be focusing on for the cost optimization?

Thank you. Thank you, Kevin, right? This is David. I will answer the first part of your question about the new initiatives. And in terms of the second part related to cost, our CFO, Oscar, will answer that. Yes, I think it's a good question about we do see a substantial growth in our first quarter. And, of course, some of the growth are from our new initiatives. As we know, in the past decades, especially in the last few years, we have invested significantly. strategically we invest heavily in research and development, in tech knowledge, in product development. Our focus early years were focusing on building capabilities, including like digital marketing, data and AI-driven credit and risk management solution, and other tech solutions for credit card companies uh for for for for for for for banks uh for insurance uh company and other other fintech related uh companies so uh we have uh achieved growth uh year over year but it started about two years ago we started implementing uh and similar uh digital or and and technical capabilities into other adjacent sectors and categories. So we see that growth from, like, for example, e-commerce sector. So as we know, e-commerce in China has accomplished a huge growth in the last almost... two decades. And I have a few numbers I can share with our investors. So e-commerce sales in China reached around 13.8 trillion RMB in 2021. We'll grow to around 21 trillion RMB by 2025. And there's something in common between e-commerce and the financial services. Of course, there are It's a large user needs, right? Almost everyone wants to buy stuff and spend the money. And it's also analytical and data-driven. So you definitely see the common needs in terms of user acquisition, user retention, engagement, managed risk. And we have seen some innovation related to purchasing and payments as well as credit. So that's why around two years ago, we launched our social media and partnership program into e-commerce sector. This brings us a diversified revenue stream on top of credit card recommendation, loan recommendation, insurance-related recommendation, and data and risk management services, as well as advertising and marketing and digital-related revenues from e-commerce. So that's That's the growth we have seen in the last few quarters, especially for the first quarter of 2021. We believe the digital transformation trends for financial service sector as well as other sectors and industry will continue. for years to come. So we believe our investment in the last few quarters will put us in a much better position in terms of growth of revenue stream, in terms of more diversified revenue, and in terms of more efficiency and improved unit economics and and also help us to achieve better economic scale going forward. Thank you.

Thanks. That's very comprehensive. Hi, Kevin. This is Oscar.

Oscar, you want to go ahead with the part of the initiative? Yeah.

Okay. Yeah, thank you, David. And thanks, Kevin, for your question. Yeah, this is Oscar. I think your second question relating to cost initiatives and management, I think the first one is about some cost measures about our new business. I think in the current market environment, our strategy to manage our business is to balance between growth and efficiency. For the more mature business, such as recommendation services and the big data and systems, based risk management services, we prioritize efficiency over growth. For the new businesses, as you asked, we may consider to sacrifice the profitability to a certain extent to achieve high growth. As such, we closely monitor the growth rate and the unit economics or contribution margin for our new businesses. In the first quarter, we are pleased to see the ROI of our new business keep increasing and the unit economics turn positive. At the same time, the fixed costs, mainly the R&D spending of new businesses, both in dollar amount and as a proportion of total R&D spending, have decreased significantly. This is a result of previous upfront investments beginning to bear fruit as new business develops. Anticipating the uncertainties and the challenges in the near term, I think we will focus more on the probability and be more disciplined on cost of control in the next few quarters and stay nimble and adaptive based on our close monitoring of the business developments. I think for the cost optimization measures, we have taken our cost optimization initiative almost in the last two years, mainly considering uncertainties and the challenges around ongoing pandemic and the regulatory change. So we're also closely monitoring and evaluating the resources allocated among existing business and the new initiatives, and consolidating overlapping resources to enhance operating efficiency and optimize our cost structure, which led to the reduction in operating expenses. Just to give you a few numbers. The total operating expenses as percentage of revenue in the first quarter decreased by 26 percentage points compared with the prior periods in 2021.

Also, we have fixed cost reduction of downfall server and bandwidth costs. which is 27% year-over-year. And for rental, which is around 12% year-over-year. We have also the resource allocation and we also have the optimization.

Through the optimization, you know, the overall has around 11% cost savings. I think anticipating the challenges and uncertainties, we will further execute our cost control and optimization measures in the coming quarters. We expect such measures will bring us efficiency improvement and further reduction of fixed costs. Hope this answers your question, Kevin. Yes, thank you.

And ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then 1. We'll pause momentarily to assemble our roster. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for any final remarks.

Thank you, operator. Thank you all for participating on today's call. There are no further questions, and thank you for your support. We appreciate your interest and look forward to speaking with you again in the near future. Have a good rest of the day. Thank you very much.

Thank you. Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.