Jianpu Technology Inc.

Good day and welcome to the Janpu Technology Incorporated second quarter 2022 earnings conference call. All participants will be in a 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 your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Colin Chung, Please go ahead, sir.

Thank you, Operator. Hello, everyone, and thank you for joining us today. Our second quarter and first half year 2022 earnings release were distributed earlier today and is available on our IR website at ir.genpool.ai, as well as on PR need-wide services. On the call today from GenPool Technology, we have Mr. David Yeh, co-founder, chairman, and chief executive officer of 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 four looking statements as defined in Section 21E of the Securities Exchange of 1934 and the U.S. Market Security Litigation Reform Act of 1995. These four looking statements are based on management's current expectations, the current market and operating conditions, and relates 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 on the applicable one. Finally, please note that unless otherwise stated, all pages mentioned during the conference call are in written indeed. 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 joining us today. During the second quarter, the rolling lockdowns across China caused by the resurgence of COVID-19 resulted in a more challenging macro environment. Nevertheless, we continue to deliver another quarter of strong results with a total revenue of 34% and a bottom line improvement by 9%. The solid results primarily result from four areas. Number one, diversification of our revenue base. Number two, strong omnichannel marketing capabilities. Number three, continued operating efficiency improvements. Number four, disciplined cost cutting and optimization. The results also demonstrated our persistence in pushing forth our vision of becoming everyone's financial partner. Let me start today by going through the key highlights for the second quarter, then share some of our views on the current macro environment and the regulatory dynamics in China and how they could potentially impact our businesses before turning over to Oscar to go through the financial performance. First, our diversification strategy has enhanced our business resilience and it supports the the strong revenue growth under the current challenging macro environment. Nowadays, we generate our revenue via our platform by offering recommendation services of credit card loans and insurance products as well as other products and services. We are cooperating with 1,500 more financial service providers and other customers throughout the ecosystem. of consumers and small businesses credit product offering. We provide our marketing and user acquisition capability, data analysis, and risk management solutions, and other technological and services, enabling financial institutions' digital transformation. Geographically, we serve our users across the country with very low concentration risk. In the second quarter of 2022, we further penetrated into the tertiary cities with around 65% of the loan recommendation revenue contribution from 7- and 3-tier cities versus 55% in the first quarter. As you may know, 7- and 3-tier cities, the impacts from COVID are actually less severe compared to Shanghai and other larger cities. In the second quarter, the resurgence of COVID has prompted multiple lockdowns across China. Some of our business operations still rely on face-to-face communications and on-site implementation with customers. These current measures have brought about certain challenge. However, thanks to our diversification strategy, our recommendation business continued to achieve significant growth. with revenues increasing 38% year-over-year and 42% quarter-over-quarter. In particular, we kept our market leading position in the credit card recommendation business and the revenue from our credit card recommendation business maintained robust growth of 36% year-over-year. Our long recommendation business also benefited from a more diversified customer base with revenue growth at 42% year-over-year. Second, we continue to enhance our omnichannel marketing capabilities to enable the digital transformation of the financial industry. This allowed us to capture the increasing demand from financial institutions for identifying and engaging new users from different geographies and younger demographics. Our big data solutions also improve the risk management capabilities and the customer acquisition efficiencies of financial service providers. In Q2, we made certain achievements to further diversify our user base and strengthen our omni-channel solutions. Our social media and partner program continued its leading position, delivering both growth and efficiency. Our share in mainstream media and acquisition channels with various consumption scenarios continue to grow solidifying our widely recognized position in the industry. Another initiative worth mentioning is our efforts in promoting DCEP or digital currency electronic payment. In recent years, the Chinese authority have focused on the quantitative qualitative development of the economy, primarily driven by ongoing digital transformation, including the introduction and the promoting of its digital currency, DCEP. Since 2019, the central bank has conducted a pilot test of DCEP in different consumption scenarios in various cities, leveraging our leading position in our recommendation businesses. Our team had a significant win in partnering with a large bank to market the digital wallet. We were right on the government's commitment and investment in promoting the application of DCEP to explore further business opportunities in this area. Third is the ongoing improvement in our operating efficiency. Against the backdrop of macroeconomy and regulatory uncertainties, we continue to strive to achieve a good balance between managing our continued growth and operating efficiency. Our overall ROI, or revenue from recommendation services, advertising, and marketing services, divided by the corresponding cost of acquisition and promotion, continues to improve by 8% points. sequentially in the first half of 2022, of which the ROI of our recommendation businesses improved by seven percentage points versus the second half of 2021. We also continue to see an encouraging trend in our new initiatives, delivering an 11 percentage points ROI improvement versus the second half of 2021. Finally, our disciplined cost cutting and optimization measures help to reduce loss significantly. As we continue to optimize our operating costs and expenses while better utilizing the company's resources, we have enhanced our overall productivity leading to a margin improvement and a lower net loss in the second quarter. Our operating loss reduced significantly by 48% year-over-year, while our adjusted net loss margin further improved by 80 percentage points compared with the second quarter of 2021. Over the coming quarters, we will maintain this approach of disciplined spending, striving to achieving further improvement in our productivity and margin. I will now take a few minutes to discuss the latest macro environment. regulatory dynamics and our business outlook. With regard to the macro and regulatory environment, the rolling lockdown across China has prompted moderation of real GDP growth to 0.4% year-over-year in the second quarter. Nevertheless, the State Council Executive Meeting held in late July stated that China's economy should grow is a reasonable range this year with a particular emphasis on the stability of employment and inflation. This should be achieved by the expansion of effective investment and the continued promotion of private consumption. Meanwhile, the meeting also called for the active and consistent development of the digital consumption. We believe the government will maintain a more relaxed physical policy and the monetary policy to revive the economy in the near term. We have seen signs of a liquidity injection into the financial system with banks accelerating their loan growth recently. The government also calls for continued promotion of private consumption, particularly for developing digital consumption. This should be a positive catalyst. to facilitate further expansion of our loan and credit card recommendation businesses given our leading position in the market. The government issued new regulations and policies in terms of internet lending and credit card business, advocating banks to engage in digital transformation, product innovation, and the development of online credit businesses. This should benefit the market leaders like us. Lastly, the COVID control measures still leave uncertainties that may continue to have impact on certain segments of our operations for the next few quarters. However, our robust and resilient results for the second quarter highlight the strong benefits of our diversification strategy. Thus, we are cautiously optimistic about our business performance for the second half of this year. In summary, we believe our strong business model, investments in omnichannel marketing capability, leadership position in digital transformation solution, and disciplined cost control measures will ultimately deliver better business results for the next quarter. 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 solid financial result with resilient revenue growth and healthy margin improvement in the second quarter of 2022. Our second quarter results reflect our persistent efforts in diversifying revenue streams and optimizing cost structure. Our total revenues for the second quarter of 2022 increased by 33.9% to RMB $265.1 million from RMB $198 million in the same period of 2021. Our market's leading position in recommendation business with total recommendation service revenues increasing by 37.8% to RMB $204.7 million from RMB $148.6 million in the same period of 2021, on the back of the 36% and 41.5% year-over-year increase in credit card and loan recommendation service revenue, respectively. The increase in revenue was mainly driven by the increase in number of loan applications, 43.3%, and the credit card volume, 33.3%, on the back of our geographic diversification strategy and omni-channel marketing strategy. While the average fee per credit card also slightly increased to RMB 113.4, and the average fee per loan application increased by around 9%. to RMB 15.4 in the second quarter of 2022. Revenues from this data and system-based risk management services decreased by 37% to RMB 22.8 million in the second quarter of 2022 from RMB 36.2 million in the same period of 2021. The decrease is mainly due to the COVID-19 impact on our cooperation with customers, as well as the product adjustment. Revenue from advertising and marketing services and other services increased by 187% to RMB $37.6 million in the second quarter of 2022, from $13.1 million in the same period of 2021, significant growth of insurance brokerage services and initiatives of other new businesses. Let me now move on to cost and expenses. Cost of promotion and acquisition mainly consists of the expenditure relating to our marketing efforts and activities, which increased by 41.4% to R&D $191.8 million in the second quarter of 2022. from R&D 135.6 million in the same period of 2021. The increase was in line with the growth of our revenue from recommendation services, insurance brokerage services, and initiatives of other new businesses. In the second quarter of 2022, we have seen continuous trend of efficiency improvement. Our line of recommendation service, advertising and marketing service, and other services have shown encouraging improvements with a sequential increase of 8 percentage points in the first half of 2022, reflecting our continued efforts in achieving a good balance between growth and efficiency. We continued executing our cost optimization measures. As such, cost of operation decreased by 21.5% to RMB 20.4 million in the second quarter of 2022, from R&D 26 million in the same period of 2021. And our sales and marketing expenses, R&D expenses, and the general and administrative expenses decreased by 11.7%, 11.5%, and 25.3%, respectively, in the second quarter of 2022, compared with the same period of 2021. Measured as percentage of total revenue sales and marketing, IMD, and GMA expenses in total were 33.5% in the second quarter of 2022, reflecting a decrease of 20 percentage points from the same period of 2021. With our continued efforts in optimizing our cost structure and improving the productivity of our businesses, loss from operations was R&D 35.9 million in the second quarter of 2022 compared with R&D 69.5 million in the same period of 2021. Operating loss margin was 13.5 in the second quarter of 2022 compared with 35.1 in the same period of 2021. Our net loss and non-GAAP adjusted net loss respectively R&D 35.9 million and RMB 32.2 million in the second quarter of 2022, compared with RMB 44.5 million and RMB 40.6 million in the same period of 2021. Given the growing scale and improving efficiency, our net loss margin and non-GAAP-attracted net loss margin improved by 8.9 and 8.4 percentage points, respectively compared with the same period of 2021. As of June 30, 2022, we maintain a balance sheet with cash, cash equivalents, and the restricted cash and time deposits of RMB 673.2 million. So with that, I will conclude our prepared remarks. We will now open call to questions. Operator, please go ahead.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Calvin Wong with Spicer Capital. Please go ahead.

Thank you for answering my questions. I have two questions, one related to strategy and COVID and another one related to your financials. The first question, the management mentioned that the strong results in the second quarter were benefited from your diversification strategy. So could you give us more color about this strategy and how does it work during the period of multiple lockdowns across China. Also, how do you expect the COVID situation, if it continues, would impact your business trend in the second half this year? The second question, we noticed that significant margin improvement in the second quarter. And could you please elaborate the main drivers behind? Also, regarding the cost optimization measures you mentioned. How should we expect the impact of such measures in the second half of this year and the core space going forward? Thanks.

Thank you, Calvin. This is David. I will try to answer the first question. I will leave Oscar to answer the second question. Your first question is regarding diversification strategy. Definitely, from a strategy standpoint, we believe diversification has helped us defend the headwinds from COVID lockdown and other challenges. I would answer the diversification from forefront. We diversify from our product segments, from our recommendation services. The second, we actually diversified geographically, I mean, across China. The third point, we also have diversified in terms of marketing and the traffic acquisition source. We have diversified that as well. The last piece, demographically, we have seen our user base have a more diversified geographic coverage. I will start with the first one. As you guys understand, our revenues are from multiple product segments such as loan recommendation, credit card recommendation, insurance, brokerage business as well as other adjacent categories. We did see our recommendation business growth. Revenue growth around 38% quarter over quarter and we have also seen that you're chasing the business. The revenue growth is over 100% but of course it's a small base. This diversified revenue by multiple product segments has enabled us to grow more strongly and also robustly in the second quarter. The second piece in terms of geographical diversification. We don't see any concentration in terms of our user base across China's provinces or In the second quarter, we see a much higher growth in the second tier and tertiary or third tier cities. As you may know, third tier, even fourth tier cities, those regions actually have less impact from COVID compared to big cities like Shanghai. That definitely we see a more stronger growth in lower tier cities and even some of the rural areas. We have some strong numbers of growth in terms of lower tier cities. marketing and the traffic acquisition source, our social media and the partnership program, as well as our omni-channel marketing tools, actually we're able to track people from some consumption scenarios such as from shared economy and younger lifestyle and also digital savvy channels. That definitely helped us to weather the storms from the lockdowns. Lastly, in terms of our user acquisition, we have analyzed our demographic distribution. In the last few quarters, especially last quarter, we have seen a rising in focus in terms of China's nearly 300 million new abing residents. Those are the immigrants from county to city to some of the urban, from the rural area to city. This created additional growth driver. In terms of young and new urban residents, they are looking for enhanced financial product and services. Now we are able to track those younger generations and demographic residents and recommend it to our more diversified number of financial institutions. So I will stop here for our diversification strategy. But you also asked the expectations from the COVID situation. As I mentioned, the COVID situation is likely to continue for the next quarter. We would definitely hope the situation will be improving for the foreseeable future. Okay, I will turn it over to Oscar for the second part of your question.

Thank you, David, and thank you, Kevin, for your second question regarding the drivers behind the margin improvement. I will try to answer your question. As we emphasized and continuously delivered in the past several quarters, Our strategy to manage the business is to balance between growth and efficiency. In the current market sentiment, we are allocating our internal resources based on the contribution margin, i.e., the profitability, and secondly, the growth potential. This is why we can achieve better efficiency in recent quarters. In addition to the efficiency, I think another driver is our discipline of cost control, particularly in the current microenvironment with quite some uncertainties. Cost control is quite important to managing our business. In the first half, we focused on consolidating overlapping resources among our various business lines to enhance our productivity, and also reducing the fixed costs. We see clear results. So expenses as, you know, sales marketing, GMA, and R&D expenses, the percentage of revenue were 20 percentage points lower than the same period of 2021, down to 33.5%. of revenue, and that led to our operating loss margin improved to 13.5%. Of course, I want to mention some cost optimization measures may have some lagging effects, which will further benefit us in the second half of this year. Looking to the second half of the year, anticipating the challenges and uncertainties, we will further cut down the resources allocated to the business with lower efficiency. Of course, we're thinking about the allocation between the different business lines. We'll allocate more to the business lines with high profitability. and cut down the resources for the business line with lower efficiency. So that's our strategy. And also, at the same time, we will further optimize some contract-based fixed costs when the contract term is due. So along with the growth of our business and our further optimization on cost side, we are expecting a better margin profile down the road. I'm not sure whether this answers your question, Tyler.

Very clear. Thanks.

This concludes our question and answer session, as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.