Jianpu Technology Inc.

Good day, and welcome to the GN2 Technology, Inc. fourth quarter and full year 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 your touch-tone phone. To withdraw from the question queue, 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, head of corporate development at IR. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our fourth quarter and fiscal year 2022 earnings release were distributed earlier today and is available on our IR website at ir.genpool.ai, as well as on PR Newswire services. On the call today from JEM for Technology, we have here 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 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 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 remit 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 all for joining us today. Looking back on the year of 2022, despite the challenging economic environment, we weathered the storm and achieved sound business growth overall. The stringent pandemic control measures and the subsequent outbreak in Q4 was one of the toughest periods we've dealt with in the last few years. Our growth was hindered in the fourth quarter, as revenue did not follow our historical seasonal trends. The total revenue of both our loan and credit card recommendation services recorded a substantial quarterly decline of 23.4 percent and 16.3 percent in the fourth quarter. The progress of our new business initiatives also slowed. Despite these difficulties, we successfully maintained cost control measures and enhanced operating efficiency, resulting in a quarter-over-quarter net loss reduction of 20.0 percent in the fourth quarter and a slight net loss margin improvement from 9.3 percent to 8.1 percent. Again, such a testing backdrop throughout the year, we took several preemptive measures to show up our businesses. We appreciated ourselves by leveraging our unique asset-light platform model in the marketplace and, consequentially, achieved both growth and efficiency gain on a four-year basis. Overall, we delivered a set of resilient results with a steady recovery across multiple business lines during the year. On a year-over-year basis, we recorded solid revenue growth of 22.9% and achieved a significant margin improvement of net loss margin to 13.6% from 25.4% in 2021. These defined results were primarily driven by our relentless efforts to enhance our market-leading position, maintain a balanced and diversified revenue structure, improve operating efficiency, and execute disciplined cost optimization measures. We remain committed to our vision of becoming everyone's financial partner and empowering the digital transformation of financial industry, as well as other adjacent categories. Let me now go through the key measures we took in 2022, which we will continue to deploy in 2023. First, we continue to empower the digital transformation of financial service providers through our enhanced technological and operating capabilities. In 2022, our recommendation business So revenue growth of 27.2% year over year, reflecting our proven ability to support the financial institutions in the areas of digital marketing, user acquisition, customer retention, and risk management. Throughout 2022, we continue to expand our geographic coverage in less affluent cities and less developed regions. further growing our user base to encompass more diversified demographic spectrum. Moreover, for our credit card recommendation services, we cooperated with 56 banks compared to 51 last year, which account for more than 80% of online credit card issuing banks in China. Apart from large banks, we further expanded our network to regional banks as well as provincial branches of national banks, further diversify our client base. Together with our robust regulatory and compliance measures and unique omnichannel marketing capabilities, these initiatives increased the four-year revenue of our loan recommendation and credit card recommendation by 54.1% and 16.2% year-over-year, respectively. With innovation as our driving force, the solutions we provide to financial institutions are based on our deep technological capabilities in artificial intelligence and machine learning. In November 2022, we were honored with the Innovation and Entrepreneurship Practice Award by Harvard Business Review Ryan Sheran Management Practice Award. in recognition of our renowned track record of empowering the digital transformation of financial institutions. Furthermore, we received the Data Security Compliance Best Practices Award by the China Academy of Information and Communication Technology under the Minister of Industrial and Information Technology, demonstrating our sophisticated and innovative capabilities in data security and compliance. Second, we achieved promising breakthroughs in expansion to adjacent categories. Building on our leading position in serving financial service industries, our resources and expertise in social media and partner progress, we embarked on new strategic initiatives with non-financial sector partners throughout 2022. By establishing partnership with sector leaders from telecommunications, e-commerce, and lifestyle companies, we explored ways to enhance digital transformation from user acquisition and retention operation capabilities. These new business efforts helped boost our four-year revenue from marketing and other services by 62%. 0% year-over-year, with the revenue contribution of such services increasing steadily from 12.3% in 2021 to 16.3% in 2022. Third, our operating efficiency enhancement and the cost optimization measures led to steady margin improvement. Despite the challenging environment, our overall ROI which is revenue from recommendation services, marketing, and other services divided by the corresponding cost of acquisition and the promotion. Improved year-over-year by 14 percentage points in the fourth quarter and nine percentage points in the full year of 2022. During the fourth quarter, we saw a year-over-year ROI improvement of 13 percentage points for recommendation services and 12 percentage points for marketing and other services. Our total operating expenses, including sales and marketing, R&D and G&A, decreased by 15% year over year in 2022. This was driven in part by ongoing fixed cost reductions, which particularly impacted rental, back office, and HR costs. As a result, we achieved further margin improvement and a decline in net loss during the year. Specifically, our operating loss and net loss reduced by 41 percent and 34 percent year-over-year in 2022, respectively. Our operating loss margin and net loss margin improved by 17 and 12 percentage points in 2022, respectively. Finally, I now take a few minutes to share our observations of the macro and regulatory environment that would potentially impact our businesses. Regarding the macro environment, the government began easing COVID-19 control measures in early December. As a result, an unprecedented wave of infection spread through the country rapidly. which has stabilized since January of this year. We believe the relaxation of COVID-19 related policies could help remove constraints on consumptions and restore consumer confidence, but likely at a moderate pace. Besides, we expect the government and regulators to maintain a steadfast physical and monetary policy aimed at stimulating the economy in 2023. More recently, the government work report from the 13th National People's Congress said a real GDP growth target of around 5% for 2023 and gave priority to the goal of reviving and expanding private consumptions. Meanwhile, the National People's Congress in March approved the establishment of a National Financial Regulatory Administration to replace China Bank and the Insurance Regulatory Commission and showed us supervisionary responsibilities across the financial industry, except the security sector. We believe the new administration will further streamline the regulatory framework of the financial industry and prevent the emergence of systemic risk. Overall, significant uncertainties remain at early stage of the country's reopening. We anticipate a more stable recovery in the economy and our businesses in the second half of the year. We believe the government will emphasize the quality growth of the economy in the near future, which strengthens our confidence in the median to long-term outlook for the economy and the development prospects of the private enterprises. Besides, as artificial intelligence continues to reshape the digital economy, we are committed to strengthening our technology and innovation capabilities. We'll play a leading role in applying cutting edge technology across the FinTech industry and adjacent sectors, improving the efficiency and accuracy of our services while reducing cost. These competencies will enable us to optimize the user experience and explore new value creation opportunities in areas including product development, marketing operation, and risk management. Leveraging our successful asset-aligned business model diversified the business structure, expanded adjacent business categories, continued efficiency gains, and disciplined cost control measures We are more optimistic about our performance in the longer term. The improving economic conditions alongside the disruptive trends in artificial intelligence such as child GPT should open up new opportunities to facilitate the digital transformation of the economy and benefit inclusive finance for small and macro enterprises. We will keep exploring and capturing new opportunities to expand our businesses. We believe our industry-leading position, advanced technology, and sound execution should generate sustainable value creation for our shareholders. I now hand it over to our CFO, Oscar Chen, to run through our financials. Thank you.

Oscar Chen Thank you, David. And hello, everyone. As David mentioned earlier, the pandemic changed our business growth. in the fourth quarter of 2022. Our total revenues for the quarter decreased by 0.2% to RMB $248.3 million. But thanks to our efforts to maintain a balanced and diversified revenue structure, our total revenues for the full year increased by 22.9% to RMB $989.7 million, from RMB $805 million in the prior year. We enhanced our market leading position in the recommendation business with total revenues from recommendation services increasing by 8.5% to RMB 171.3 million in the fourth quarter from RMB 157.9 million in the same period of 2021. This improvement came on the back of 30 37.9% year-over-year increase in loan recommendation services. Revenues from credit card recommendation days, meanwhile, decreased by 3.5% year-over-year in the fourth quarter. For the full year 2022, total revenues from recommendation services increased by 27.2% to RMB $731.7 million. with revenue from credit card and loan recommendation services increasing by 16.2% and 54.1% year-over-year, respectively. The average fee per credit card and domestic loan application increased by 3.4% and 37.8% to RMB 113.6%. and RMB 14.6, respectively. Revenues from big data and system-based risk management services decreased by 20.8% to RMB 28.9 million in the fourth quarter, from RMB 36.5 million in the same period of 2021, as COVID continued to impact our cooperation with customers, and we adjusted our product lineups On a full-year basis, revenue from big data and system-based risk management services decreased by 25.7% year-over-year to R&D, 96.9 million in 2022. Nonetheless, we maintain our close relationship with financial institutions, state-backed credit bureaus, and other ecosystem partners, and are working on several new long-term partnerships. Revenues from marketing and other services decreased by 11.9% to RMB 48 million in the first quarter of 2022, from RMB 54.5 million in the same period of 2021, primarily because certain new business initiatives were negatively impacted during the COVID outbreak. For the full year, however, revenues from marketing and other services increased by 62% year over year to RMB 161 million due to growth in our insurance brokerage services and other new business initiatives. Moving on to the cost and expenses, cost of promotion and acquisition decreased by 8.2% to RMB 171.8 million in the fourth quarter of 2022 from RMB 187.2 million in the same period of 2021. On a full year basis, cost of promotion and acquisition increased by 23.3% year-over-year to RMB 693.3 million. increase was inclined with the revenue growth from recommendation services and marketing and other services. The trend of efficiency improvement continued in the fourth quarter of 2022. The ROI of recommendation services and the marketing and other services have both demonstrated encouraging progress, recording year-over-year increases of 13 percentage points and 12 percentage points respectively. Reflecting our continued efforts to balance growth and efficiency, the overall ROI in the fourth quarter improved by 14 percentage points year over year. On a full year basis, the overall ROI in 2022 improved by 90 percentage points compared with 2021. Cost of operation decreased by 4% to RMB 24.1 million in the fourth quarter of 2022. from RMB 25.1 million in the same period of 2021. Cost of operation also decreased by 4.5% year-over-year to RMB 84 million for the full year. As we continued to execute our cost optimization initiatives, our sales and marketing, RMB and G&A expenses decreased by 6% 12.9% and 29.9% year-over-year in the fourth quarter, respectively. For the full year, our sales and marketing, R&D, and GMA expenses decreased by 6.4%, 13.9%, and 25.2% year-over-year, respectively. Measured as a percentage of total revenue, our total sales and marketing and R&D and GMA expenses stood at 33%. in the fourth quarter and 35.5% for the full year 2022, compared with 39.3% and 51.4% in the same period of 2021, which represents a decrease of about 6 and 16 percentage points, respectively. As a result of our continued efforts to optimize our cost structure and improve our productivity, loss from operations was RMB 29.6 million and RMB 152 million in the fourth quarter and the full year of 2022, compared with RMB 61.2 million and RMB 258.5 million in the same period of 2021, respectively. Operating loss margin was 11.9 percent and 15.4 percent in the fourth quarter and the full year of 2022. compared with 24.6% and 32.1% in the same period of 2021. Net loss and non-GAAP adjusted net loss were respectively RMB 20.2 million and RMB 27.9 million in the fourth quarter of 2022. Compared with RMB 48.3 million and RMB $45.9 million in the same period of 2021. On a full-year basis, our net loss and non-tax adjustment loss also decreased to RMB $134.3 million and RMB $120.2 million in 2022, compared with RMB $204.1 million and RMB $186.7 million in the prior year respectively. Given our growing scale and improving efficiency, our net loss margin and non-GAAP-adjusted net loss margin improved by 11 and 7 percentage points in the fourth quarter of 2022, respectively, compared with the same period of 2021. Our net loss margin and non-GAAP-adjusted net loss margin also improved by 12 and 11 percentage points in the full year 2022, respectively. As of December 31st, 2022, we maintained a strong balance sheet with cash and cash equivalents and the restricted cash and time deposits of RMB 684.2 million. With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please go ahead.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up the handset before pressing the key. To withdraw from the question queue, please press star then 2. The first question is from Calvin Wong of Spica Capital. Please go ahead.

Thank you for taking my question. I have a question about the business strategy. You mentioned that your diversification strategy has helped to sustain your revenue growth in 2022. And also the company's initial success in terms of category expansion really impressed me. So could you give us more color about this diversification and category expansion strategies? And also, how would such strategies contribute to the company's growth down the road? Thanks.

Thank you, Calvin. This is David. Thank you for the question. I'll answer that. Yeah, so it's a very good question. So from the mind of the management team, I think how to how to build on our leading position serving financial service industries, leveraging our strong technological product and the recommendation capabilities, and so really the way the growth, right, and how to improve our overall operating efficiency, as well as how to reduce the overall risk of our businesses in this ever-changing environment. I guess that was the top thing, I mean, in our mind last year, Q4 last year, and of course going forward. So what we did in 2021, we embarked our new initiative. We started testing, test and learn testing with no financial of sectors through our partnership program. So basically we established a strategic partnership with sector leaders from telecommunication, from e-commerce, and lifestyle industries. We helped those industry leaders transforming their businesses digitally. So that's what we did. But, of course, I mean, we said we started small. It's test and learn, learn and grow. And we believe last year, a whole year overall, we believe it was a truly breakthrough. We leveraged our technical product and also recommendation keeping video. That's our core product strategies. In the meantime, that's the first is category expansion. The second part of expansion, we also expanded the product side within the financial sectors. Basically, we worked with a number of financial institutions to promote financial products such as credit card and SME consumer loans related to ruler revitalization. Basically, we are targeting new segments of product and user, from ruler to new urban resident, to helping those regional banks and banks to acquire, identify, and engage with different segments of user base. This product expansion is also related to our geographical and demographic population. By expanding to adjacent categories, expanding the products and the geographical selection, it's helped us to enhance our overall business efficiency helped improve our return on investment, enhanced our business resilience, and of course, we believe definitely helped us to reduce the overall risk of our overall businesses. But also, of course, we definitely see potential new growth, expanded growth for this new or adjacent category product and the geographic demographic. Thank you.

Thanks.

Again, if you have a question, please press star then 1. There are no other questions. This concludes our question and answer session. I would like to turn the conference back over to Colin Chung for closing remarks.

Thank you. And thank you once again for joining us today. If you have any further questions, please contact us at ir.rome360.com. Thank you for your attention, and we hope you have a wonderful day. Goodbye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.