Jianpu Technology Inc.

Thank you, and welcome to the GR&E Technology Inc. First Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, 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 hand the conference over to Lucy and Lou. Please go ahead.

Hello, everyone, and thank you for joining us today. Our first call to 2023 will be distributed earlier today, and it's available on our IR website at ir.genpu.ai, as well as on PR Newswire services. On the call today from Genpu 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 section 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 Security Application 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 risk, uncertainties, and other factors, all of which are difficult to predict. and many of which are beyond the company's control. This risk may cause the company's actual results or performance to differ materially. Further information regarding this and other risk uncertainties or factors is included in the company's filing 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 IMD. It is now my pleasure to introduce our co-founder, chairman, and chief executive officer, Mr. David Yeh. David, please go ahead.

Thank you, Li-Ting. Hello, everyone, and thank you for joining us today. Despite the ongoing challenges caused by the lagging effect of COVID, our capital asset, capital platform model, diversification, digital tech, and AI strategies allowed us to benefit from the economic rebound in the first quarter. We are pleased to announce a robust 39.4% year-over-year revenue growth in the first quarter of 2023. At the same time, the net loss was trimmed by a considerably 60.8% year-over-year, leading to a loss margin of 7.2%. the third consecutive quarter with a single digit net loss margin. Looking ahead to the rest of 2023, we remain committed to facilitating the digital transformation of our financial service providers and other ecosystem partners. Moreover, we're excited about the emerging trend in artificial intelligence driven by large language models and its massive application potential. We are actively exploring the feasibility of implementing such new technologies across all facets of our businesses. We drive the development of a tech-based inclusive finance model and empower our business partners more digitally, automatically, and intelligently. We are focused on executing our vision of becoming everyone's financial partner and driving the digital transformation of the financial industry and beyond. Let me now go through three key performance highlights from the first quarter. First, we bolstered our technological and operational capabilities to better serve our partners and stay on the cutting edge of digital transformation. Our revenue from credit card and loan recommendation services during the quarter increased by 30.1 and 32.2% year-over-year, respectively. The robust growth reflects our proven ability to support financial institutions with their digital marketing, user acquisition, customer retention, and risk management. As a leading independent platform for discovery and the recommendation from financial products and services, our years of experience have allowed us to gain deep insight into industry trends. We continuously optimize our digital marketing and risk control models to empower financial service providers. Our operational experience and compliance practices are recognized by our ecosystem partner. Therefore, improving our omnichannel capabilities. Going forward, we will continue to forge stronger relationships with banks and other financial institutions, assisting them with digital transformation, refining marketing strategy, and deepening our client engagement and risk management capabilities. Our commitment to being bank-trusted strategic partners will enable us to provide high-quality and efficient services to adapt to the challenging market demand. Second, our new business initiatives made significant progress. Our continued efforts to drive new business initiatives yield impressive results in terms of category expansion and the delivery of revenue growth of marketing and other services by 80.8% year-over-year in the first quarter. Revenue contribution From marketing and other services for adjacent category also increased from 16.3% of revenue in 2022 to 27.0% in the first quarter of 2023. Our user acquisition and retention capabilities have also gained widespread recognition from leading players in adjacent categories and industries. In the first quarter, we further strengthened our partnership in insurance, telecom, e-commerce, and lifestyle sectors. In particular, we facilitated the acquisition of more than 1 million new users for leading telecom service providers, showcasing our sophisticated digital marketing capability and improving social media and partnership programs. a successful deployment in covering a wider spectrum of users with various needs other than financial sectors. Third, our enhanced operational efficiency and optimized cost structure drove further margin improvement. With the lingering effects of COVID, our ROI remained fairly strong and stable. With an overall year-over-year ROI of 126.3% in Q1, we saw year-over-year ROI improvement of 2.4% for recommendation services and 4.3% points for the new business initiatives during the quarter. The stability demonstrates the resilience and the profitability of our solid business model, even in the face of challenging circumstances. Total operating expenses, including sales and marketing, R&D and G&A, decreased by 11.4% year-over-year in the first quarter. This was driven in part by our targeted streamlining of operations and strategic human resources allocation, resulting in further margin improvement and a decline in net loss. In Q1, Our operating loss and net loss decreased by 56.8 and 60.8% year-over-year, respectively. Operating loss margin and net loss margin improved by 18.2 and 18.3 percentage points year-over-year during this quarter, respectively. In particular, our Q1 net loss margin of 7.2% is the third consecutive quarter of single-digit net loss margin reflecting positively our continued efforts of efficiency improvement under the cost optimization as well as our capability to turn profit in the near future. After sharing our business highlights in the first quarter, I would like to take a few minutes to talk a bit about our artificial intelligence initiatives. Being a financial product recommendation platform built upon big data AI and one of our underlying technology, We are excited about and we're excited by the large trend led by large language model and its transformative impact on AI development. Currently, we are actively implementing and integrating AI tools such as child GPT into our operations. As of March 31st, around 60% of our staff have utilized AI tools and technologies to improve work efficiency and customer service. And this number continues to grow on a daily basis. In addition to this, we are also actively exploring ways to deploy AI across our businesses. For instance, our software as a service based on the customized risk modeling and the management practice we have developed a customized risk control model by fine-tuning an external natural language process model with our proprietary algorithm and data. This enables us to more efficiently deliver risk assessment analysis aligned with our client-specific needs. In summary, AI solutions present an opportunity to enhance our products and service delivery efficiency and effectiveness across various functions such as product development, creative design, marketing, operation, risk management, and other functions. Finally, let me take a few minutes to share our views on the macro environment and our business outlook. Regarding the macro environment, the government and the regulators recently emphasized the revival and expansion of market demand with a particular focus on stimulating private sector consumptions. As such, we anticipate the government's implementation of more effective and relaxed fiscal policy stable and precise monetary policy and additional incentives to promote private and public sector investments. However, we did observe some volatility since the first quarter, predicting GDP growth rate in Q2 may slow down a bit sequentially. Underperformance in aggregate finance in the real economy in April versus market forecasts and the recovery of consumer confidence and household sector confidence is still subject to observation. Overall, because of the lagging impact of COVID, we expect China's economic rebound will remain gradual throughout the first half of 2023 with a more stable footing in the second half. The recent inauguration of the National Financial Regulatory Administration also signals an imminent enhancement in the regulatory oversight of the financial sector, which will result in further patterning of pricing and operational flow of financial products offered by financial institutions. Despite this, we anticipate the government's continued emphasis on high-quality economic growth will provide a solid foundation for our business to grow. Overall, we believe our business is well positioned for a strong recovery Thanks to our efficient capital light business model, constantly innovating digital and AI-based technology, increasing diversification revenue mix, and ongoing efficiency gains. We are leveraging our market-leading position, advanced technology, and a proven track record of execution. to facilitate the digital transformation of the economy and generating long-term value for our customers and shareholders. I will now hand over the call to our CFO, Oscar Chen, to run through our financials. Thank you.

Oscar Chen Thank you, David. And hello, everyone. As David mentioned earlier, we delivered strong results in the first quarter of 2023, supported by our capitalized business model and a successful diversification strategy. Our total revenues for the quarter increased by 39.4% to RMB 289.4 million from RMB 207.6 million in the same period of 2022. This robust growth performance was mainly driven by increased revenues from recommendation services and marketing and other services, and to a lesser extent, the recovery of our big data and system-based risk management services. We sustained our market leading position in the recommendation business with total revenues from this business line increasing by 30.9% to RMB 188.6 million in the first quarter from RMB 144.1 million in the same period of 2022. Revenues from credit card and loan recommendation services increased by 30.1% and 32.2% year-over-year in the first quarter, respectively. Credit card volume increased year-over-year by 22.2% to approximately 1.1 million, and the average fee per credit card increased slightly to RMB 114.3 in the first quarter of 2023. The increase in revenue from loan recommendation services was mainly driven by the increase of average fee per loan application by around 26.7 year-over-year to RMB 14.7 in the first quarter of 2023 due to a more favorable product mix. Revenues from big data and system-based risk management services resumed to grow by 11.9% to RMB 22.6 million in the first quarter of 2023. The increase was mainly attributable to the increase in average spending per customer. Revenues from our marketing and other services increased by 80.8% to RMB 78.1 million in the first quarter of 2023, from RMB 43.2 million in the same quarter of 2022, primarily due to the increased revenue from other new business initiatives. further proving the success of our category expansion by applying technology and operational capabilities into adjacent categories. Moving on to cost and expenses. Cost of promotion and acquisition increased by 41.2 cents to RMB 211.1 million in the first quarter of 2023. from RMB 149.5 million in the same period of 2022. The overall ROI for recommendation services and marketing and other services improved to 126.3%. The ROI of recommendation services and marketing and other services recorded year-over-year increase by 2 percentage points and 4 percentage points in the first quarter respectively, implying further improvements in our efficiency. Cost of operations remain fairly stable at RMB 18.4 million in the first quarter of 2023, compared with RMB 18.5 in the same period of 2022, As we continue to execute our cost optimization initiatives, our sales and marketing expenses, R&D expenses, and G&A expenses for the first quarter decreased by 6.2%, 15.1%, and 13.4% year-over-year, respectively. Measured as the percentage of total revenue, our total sales and marketing, R&D, and G&A expenses declined to 28.9% in the first quarter compared with 45.4% in the same period of 2022, which represents a decrease of about 16.5 percentage points. Thanks to our continued efforts to optimize our carbon structure and improve our productivity, loss from operations was RMB 23.6 million in the first quarter of 2023, down significantly from RMB 54.6 million in the same period of 2022. Operating loss margin was 8.1% in the first quarter of 2023, compared with 26.3% in the same period of 2022. Our net loss and the non-GAAP adjusted net loss was RMB 20.8 million and RMB 19.4 million in the first quarter of 2023, compared with RMB 53 million and RMB 50.8 million in the same period of 2021, of 2022, respectively. As we continue to scale up and improve our efficiency, our net loss margin and the non-GAAP adjusted net loss margin for the first quarter improved by 18.3 and 17.7 percentage points, respectively, compared with the same period of 2022. As of March 31, 2023, we maintain the starting balance sheet with cash, cash equivalent, and short-term liquidity of RMB 613.5 million. With that, I will conclude our prepared remarks. We will now open the call to questions. Operators, please go ahead.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Your first question comes from Caroline, private investor. Please go ahead.

Hi, management. Thank you for taking my questions. I have two questions. The first one is I understand that the company's major business is to empower the digital transformation of banks and the other financial institutions. Also, digitization is the major thing for the economy development. So could you please elaborate what your company has done and will do in the future to empower the digital transformation? And you mentioned that the emerging trend of the large language model. So what will be the potential impact on digital transformation? And my second question is, I noticed that your network is gradually narrowing. So may I know the reasons behind it? When do you expect the company to become break-even? Thank you very much.

Thank you, Carol. This is David. I will answer the first question about the digital transformation and AI. Oscar will handle the second question about some financials. Yeah, so, okay. Yeah, so, GM4, our vision is to become everyone's financial partner. We have been the digital transformation of hundreds of financial institutions for over close to now, now close to a decade, right? And so, we have been helping banks, company, and other financial service providers in risk assessment, right? digital marketing, user acquisition, customer rotation, operation, and fraud detection, and applying our search recommendation engine as well as a one-stop integrated solutions across the credit life cycle for those institutions. So that's why the digital, the big data digital, that's breaking the bottom of our business. As we know, China, the country, I mean, all sectors, all other sectors have been transforming into digital, e-commerce, social media, et cetera. But the finance sector, actually, we are also ahead of the curve compared to other sectors, but still is in a growing or in a developing stage. That's putting it that way. So in the past, our focus has been focusing on, for example, digital marketing, user acquisition, and customer retention operation. But since 2015, we have also developed digital tech AI and also big data-powered risk management That's from credit assessment, fraud detection, as well as solutions from the risk cycle. We also expanded our risk management services to some low financial partners. such as some of the regulators and other sectors such as e-commerce and the telecom sectors. So that's the digital part. From AI, we first launched our AI-powered solution. We call it Vision 1.0. That's late 2017, 2018. And recently, as we know, the open AI and the chat GPT has been launched less than a year ago. Now our tech team, our business team, and basically all functions, all staffs, We have been researching and leveraging AI in our business. I just want to give out one or two examples. risk tech solution business. We have developed a customized risk management and control models by fine-tuning an external natural language model with our proprietary algorithm and data to provide financial institutions more efficient risk assessment benefits. So those applications are from application fraud detection and risk model and credit risk policy improvement. That's just one of the examples that we are working on. As we all know, the power of AI on our society or people's lives, specifically on the financial service sector, has just started. One thing I want to mention is very interesting. The training of the data or the application or the solutions for the financial service sector is actually behind other sectors such as social media or e-commerce or even other sectors. However, we believe, we strongly believe that the finance sector, financial sector, or fintech sector will be one of the top sector that will be impacted or will benefit from large language model from AI. And this is similar to The last technological trend for PC or mobile internet or cloud, the financial sector is actually one of the top two sectors that are invested in. in technology and transform the sector that big by the new technology, new trend like AI. So that's why we are optimistic. We are confident. I would say that our team, our partners, I mean, including ourselves, we are, I would say, we're betting heavily on AI. I'm putting it that way. So, in summary, we will better integrate AI, given by a large language model, with our digital transformation capabilities. It's a part of our regional strategy, and we also apply that in our business operations. We want to further enhance our overall capability as a tech-driven digital transformation and AI-powered company that supports our vision to become everyone's financial partner. I think that's coming, that will happen. Thank you.

I will take the second question about the improving margin. We are pleased to see our narrowing net loss in the past number of quarters. In particular, in the last three quarters, we achieved a single-digit net loss margin. I think that's the reason behind the margin improvement and the narrowing net loss margin. The reason being is, firstly, the business volume growth. Secondly, is the efficiency gain. And the third, of course, is the cost control. I think we can see our continuous growth in our revenue scale. In the first quarter, you can observe a robust year-over-year growth of 39%. And, furthermore, it is worth emphasizing that our revenue growth has achieved a competitive growth for the last five quarters. And, secondly, you know, we achieved a well balance between the growth and the efficiency. For more mature business, such as recommendation services, we prioritize efficiency over growth. and for the new business, we may consider to, you know, sacrifice probability a bit to a certain extent to achieve high growth. So a well-balanced, you know, A well-balanced between the growth and efficiency help us to grow our ROI continuously, which results in the margin improvements by various business lines. is the cost of control. We streamed our business line with targeted measures and strategically optimized our resource allocation among the different business lines, which resulted in our operating expenses decreased by around 11% year-over-year in the first quarter. So I think we, you know, We are now well-positioned to benefit from the recovery of the microeconomy, given our leading position in the industry and our continuous efforts to drive the business, the efficiency gain, and to control the cost. I think if we, you know, following this trajectory, we expect, you know, we are, we expect we will achieve a break even in the near future. Yes, thanks.

Thank you, Carol.

Thank you for your answer. I have no further questions.

Thank you. Once again, if you wish to ask a question, please press star, then one on your telephone keypad. That's star, then one. We'll now pause a moment to allow for any final questions to register. There are no further questions at this time. This concludes our question and answer session. I would like to turn the conference back to Lee Singlu for closing remarks.

Thank you once again for joining us today. If you have any further questions, please contact us at irsroom360.com. Thank you for your attention, and we hope you have a wonderful day. Bye.

Thank you. Thank you. Have a good weekend.

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