Jianpu Technology Inc.

Inc. Third 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 have pressed star and then one on your telephone keypad. 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 Colin Chung, Head of Corporate Development and Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone, and thank you for joining us today. Our third quarter and first nine months 2022 earnings release were distributed earlier today and is available on our IR website at ir.jenpu.ai, as well as on PR Newswire services. On the call today from Jenpu 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 four 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 and 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 U.S. SEC. 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 remandee. It is now my pleasure to introduce our co-founding 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 third quarter, we reported another set of resilient results against the backdrop of a challenging macro environment. Our revenue growth remained solid at 26% year-over-year. Our adjusted net loss reduced by 82% year-over-year, to remain the 9.4 million. And our adjusted net loss margin improved significantly to 3.5% from 24% a year earlier and 12% in the previous quarter. These results were primarily driven by our balanced and diversified revenue structure, continued operational efficiency improvement, and disciplined cost optimization measures. The results further demonstrate the resilience and nimbleness of our asset-light platform model, our team's capability to navigate through the challenges and uncertainties, as well as our commitment to progressing for our vision of becoming everyone's financial partner by empowering the digital transformation through our technology and product innovations. Let me now go through the key operational highlights for the third quarter. First, we have further strengthened our competitive positions as an independent open platform and continued to gain market share with a balanced and diversified revenue structure. In the third quarter, we continue to empower the financial industry with solutions based on our technical capabilities in digital marketing and acquisition, data analytics, operational and risk management. Leveraging our market-leading position with further geographical and a demographic expansion, our recommendation business sustained a robust revenue growth of 30% year-over-year in the third quarter. In terms of credit card recommendation services, we have leveraged our strong partnership with banks and the unique omnichannel capabilities to further expand into more products and services. For instance, we worked with several digital savvy banks to promote a ruler revitalization credit cards to less affluent geographic areas, helping some banks acquire and engage with new users in the new urban resident category. In addition, we customized our digital solutions by building ecosystems for banks to improve their cardholder retention and engagement, improve their operational efficiency. We also continue to cooperate with the leading banks to expand and explore the digital currency electronic payment, or DCEP, initiatives. Financial institutions have been encouraged to extend more lendings to support the real economy, in particular, the small and medium-sized business sectors. We have taken advantage of such policy shifts, adjusted our product coverage of our loan recommendation services to target more SMEs and the increasing new urban citizens, and continue to expand our geographical coverage to service users with financial needs in less affluent cities and less developed areas. In the third quarter, Revenue from our loan recommendation services grew by 76% year-over-year in the third quarter. Over 60% of our loan recommendation revenue was contributed from certain third-tier and less affluent areas in the first nine months of 2022. Overall, we continue to achieve a solid total revenue growth of 26% year-over-year in the third quarter. At the same time, our business mix has become more diversified. Moving on to my next point, we have seen continuous gain in operational efficiency. Anticipating the challenges and uncertainties of the macroeconomy and the regulatory environment, we further prioritize efficiency over growth. With our platform business model, technological and product innovation capabilities, we have seen tremendous efficiency gain. Our overall ROI, or revenue from recommendation services, advertising and marketing services, divided by the corresponding cost of acquisition and promotion improved by 12 percentage points year-over-year in the third quarter and six percentage points year-over-year in the first nine months of 2022. We have also seen sequential improvements The ROI in the first quarter, second quarter, and the third quarter of 2022 were 125 percent, 126 percent, and 135 percent respectively. Third, our ongoing cost optimization measures led to a significant margin improvement. Our total operating expenses including sales and marketing R&D and G&A, decreased by 19% year-over-year in the third quarter of 2022. As a result, we recorded further margin improvement and a sharp fall of net loss in the third quarter. Specifically, our operating loss and long-gap adjusted net loss narrowed significantly in by 47 percent year-over-year and 82 percent year-over-year in the third quarter. Our non-GAAP adjusted net loss margin improved significantly from 24 percent a year earlier and 12 percent in the previous quarter to 3.5 percent this quarter. We maintained the strategy of optimizing company resources and streamlining operations, which yielded further results through a reduction in the fixed cost base, including office rentals and other back office costs and resources. Going forward, we will maintain disciplined cost control and strive to improve our productivity and margin further. Finally, I will now take a few minutes to discuss the outlook to the macro environment and our businesses. With regard to the macro environment, China's real GDP growth remained moderate at 3.9 percent year-over-year in the third quarter. As the ongoing pandemic prevention and control measures continued, specifically, growth in the retail sale weakened to 2.5 percent in September. Meanwhile, the residential mortgages and the household consumption loans recorded a moderate growth rate of 4.1 and 5.4% year-over-year, respectively, at the end of September 2022. The Chinese government and the regulators have recently unveiled various measures to stimulate the real estate industry and ease certain pandemic control policies. However, the recent resurgence of the pandemic indicates a more complicated macro outlook, with uncertainties likely to persist in the first quarter of this year. In the longer run, we believe the government will maintain a more relaxed physical and monetary policy to revive the economy. Besides, with the government's emphasis on the quality development of the economy, we believe China will be able to regain the growth momentum in the coming years. While the COVID control measures may continue to impact some of our operations in the next few quarters, the potential slow recovery in consumer sentiment may also constrain the growth of our business. Normally, the fourth quarter would be our strongest quarter of the year, even our historical seasonality pattern. But we would take a cautious view that the upcoming fourth quarter may not follow the historical pattern and expect our growth rate would be dampened in the near term. At the same time, We believe our industry-leading position, technological capabilities, and a strong execution will enable us to successfully navigate through these challenges. While our diversified revenue structure, optimized operational efficiency, and disciplined cost control measures will help us to continue enhancing our overall productivity, efficiency, and supporting our goals in the future. I now hand over our call to CFO Oscar Chen to go through our financials.

Thank you, David. And hello, everyone. As David mentioned earlier, we delivered another solid quarter with strong revenue growth, margin improvement, and narrowing losses in the third quarter of 2022. Our third quarter results reflect our persistent efforts in business and the geographic diversification, digital transformation capabilities, as well as our discipline of control. Our total revenues for the third quarter of 2022 increased by 26.4% to RMB $268.8 million, from RMB $216.6 million in the same period of 2021 Our market leading position in the recommendation business sustained with total recommendation services revenue increasing by 30.3% to R&D 211.6 million from R&D 162.4 million in the same period of 2021 on the back of the 11.9% and 70% 75.8% year-over-year increase in credit card and the loan recommendation service revenue respectively. The increasing revenue is primarily driven by the increase in number of loan applications and the credit card volume given our geographic diversification and omnichannel marketing strategy. The average fee per credit card has a slight sequential and year-over-year increase to RMB 116.4 in the third quarter of 2022. The advocacy for domestic loan applications increased by around 48% year-over-year to RMB 16.5 in the third quarter of 2022. This resulted from a more optimized product mix. Revenues from our big data and system-based risk management services decreased by 18.8% to RMB 25 million in the third quarter of 2022 from RMB 30.8 million in the same period of 2021. The decrease is mainly due to the impact of COVID-19 of our cooperation with customers as well as product adjustments. Revenues from advertising and marketing services and other services increased by 66% to RMB $32.2 million in the third quarter of 2022, from RMB $19.4 million in the same period of 2021, primarily due to the growth of insurance brokerage services and other new business initiatives. Let me now move on to the costs and expenses. Cost of promotion and acquisition increased by 22.1% to RMB 180.2 million in the third quarter of 2022, from RMB 147.6 million in the same period of 2021. In the third quarter of 2022, we have seen the 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 9 percentage points compared with the second quarter of 2022, reflecting our continued efforts to achieve a good balance between growth and efficiency. At the same time, the ROI improvement also benefited from our growing scale. The ROI of our new business initiatives improved by 23 percentage points year-over-year and 7 percentage points sequentially in the third quarter. reflecting the economies of scale of our platform business model. Cost of operation increased by 5% to RMB $21 million in the third quarter of 2022 from RMB $20 million in the same period of 2021. The increase was primarily attributable to an increase in software development and maintenance costs related to big data and system-based risk management services. As we continue executing our cost optimization initiatives, our IMD expenses and the GMA expenses decreased by 11.2% and 41.6% respectively in the third quarter of 2022 compared with the same period of 2021. Our sales and marketing expenses had a slight increase of 1.2% year-over-year in the third quarter of 2022. Measured as the percentage of total revenue, sales and marketing, IMD and GMA expenses in total were 32% in the third quarter of 2022, compared with 49.7% in the same period of 2021. a decrease of about 18 percentage points. In the third quarter, we also recorded an impairment loss of RMB 13.3 million, which was an impairment of the goodwill and intangible assets of an acquired subsidiary. With our continued efforts in optimizing our cost structure and improving the productivity of our business, loss from operations was RMB 31.9 million in the third quarter of 2022, compared with RMB 60.6 million in the same period of 2021. Operating loss margin was 11.9% in the third quarter of 2021, compared with 28.5% in the same period of 2021. Net loss and the non-GAAP adjusted net loss were respectively RMB 25.1 million and RMB 9.4 million in the third quarter of 2022, compared with RMB 60 million and RMB 56.8 million in the same period of 2021. Given the growing scale and the improving efficiency, our net loss margin and the non-GAAP adjusted net loss margin improved significantly by 19 and 20 percentage points, respectively, compared with the same period of 2021. As of September 30, 2022, we maintain the balance sheet with cash equivalents and a short-term liquidity of RMB 700.5 million. 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 telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause for a moment to assemble our roster. Our first question today will come from Calvin Wang of PICA Capital. Please go ahead.

Hi, management. Thank you very much for taking my questions. I would like to have two questions, if I may. The first one is about the impressive sequential improving trend of your ROI. So could you please elaborate more about the underlying drivers of such good improvement, and how the trend will look like into next year. That's my first question. And the second question is related to the Outlook guidance, because you mentioned that the fourth quarter may not follow the historical seasonality pattern. Why is that? And could you please provide more colour of the Outlook towards next quarter and probably first half of next year. So again, the first one is more related to the ROI and the second one is about the outlook guidance. Thanks.

Hi, Talon. This is Oscar. Thank you for your questions. I will take your first question regarding the and also the sequential trend of the efficiency gain of our business. I think there are a couple of reasons behind the improvement. Firstly, I think the improvement of operating efficiency is the natural outcome of our platform business model. As the scale grows, the economies of scale would tip in During the last three quarters, our revenue grew at 33% year-over-year. The growth of our business helped us to get more bargaining power, and we managed to get better economics in terms of average fee per loan application and credit card volume, as we just discussed. And I think the second reason is our diversification and omnichannel strategy also helps the efficiency gain, particularly in our low-recommendation business. As we expanded our footprint into more cities and areas and cover more users from different demographics, our technology further enhanced the efficiency about acquisition, recommendation, and the distribution capabilities. And certainly, I think the most important is our strategy for this year to manage our growth, which is to balance between the growth and efficiency. We closely monitor the growth rate and the unit economics or contribution margin for each business segment. For more mature business, we prioritize efficiency over growth. For some new business, we may consider to sacrifice profitability to a certain extent to achieve high growth. So in the third quarter of 2022, our recommendation business grow at 30% with 10 percentage points improvement of efficiency. And our new business initiative grew at 66% with over 20% percentage points of efficiency gain compared with the same period of 2021. So I think that's, yeah, you know, these are the major reasons for our, you know, improvement of ROI and the gain efficiency from our operations. Going forward, considering considering the challenges and uncertainties, I think we will stick to our existing strategy to manage our business further. That means we still want to achieve the balance between growth and efficiency. And we may consider certainties when we prioritize efficiency further. I hope that answers your question, Calvin.

Very clear. Thanks.

Hello. Hi, Calvin. I'll try to answer the second question, why the fourth quarter may not follow the historical peak of high season this year. Yeah, so J&P, we have about 10 years of full-year operational history in the past 10 full years. We definitely have seen the fourth quarter normally account for over 30% of our annual businesses. For many reasons, as a platform, we're connecting our users or consumers or SMEs with financial institutions. So typically in the fourth quarter or before the Chinese New Year, our users, they're looking for more loans, credit cards, looking for more financial products and services. And also financial institutions typically extend more credits alone or other financial products. to users. So that's why we have seen I would say pre-Chinese New Year or end of the year holiday effect almost every year. This year, of course, is different. As we all know, the COVID-19 prevention and control measures are still impacting most of the uh regions and also impacting a lot of business activities across uh across sectors industries and across regions so so that's that's that's why i uh we would definitely have a very cautious uh view uh uh for the for the for the for the fourth quarter uh so given the the covet uh uh prevention and control measures and other uncertainties and challenges. We definitely will not see a fourth quarter peak this year. We definitely see the growth will be dampened in the next, I would say, quarter or two. But we are confident we should be able to maintain our growth and also further improve our efficiencies and productivity in a couple of months. Thank you.

Thank you. Very clear.

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Okay. I guess if there are no further questions, then I'll like to thank you, everyone, once again for joining us today. Of course, if you have any further questions, please contact us at ir.rong360.com. Thank you for your attention, and we hope you have a wonderful day. Goodbye.

The conference has now concluded. We do thank you for attending today's presentation, and you may now disconnect.