Jianpu Technology Inc.

Hello, and welcome to the Jempu Technology, Inc. Second Quarter 2023 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 touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I now would like to turn the conference over to Li-Ting Liu, investor relations director. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our second quarter 2023 earnings release was distributed today earlier and is 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. here will talk about the 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 training session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements defining 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 risk 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 this and other risks, uncertainties, or factors is included in the company's filing with the U.S. SEC. The company does not undertake any obligations 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 IMB. It is now my pleasure to introduce our co-founder, chairman, and chief executive officer, Mr. David Yeh. Please go ahead.

Thank you, Li-Ting. Hello, everyone. Good morning and good evening. I've been feeling under the weather with a sore throat for the past two days, so Oscar Chen will be handling the CEO's groups on my behalf. I will try to answer one or two questions during the Q&A session. Oscar, please go ahead.

OK. Thank you, David. Yeah, I'm Oscar. Today, due to David's sore throat, I guess everyone on the call can hear that. So I will do David's part on his behalf, followed by my part, the CFO script, and save David's voice for the Q&A part. So let me start with the CEO script first. Thank you everyone for joining us today. After a strong reopening boost earlier this year, the second quarter saw some volatilities and slowdown in terms of economic recovery. Furthermore, the second quarter was a critical quarter for certain regulatory policies implementation and execution, which presented certain challenges to us. Despite these headwinds, we continue to deliver another solid quarter, benefited from our capital life platform model and the diversification strategy, with a continuously improving margin profile of approaching break-even and a year-over-year revenue growth of 7.7%. With our strong commitment to the digital transformation of financial services providers and other ecosystem partners, we continue to enhance our leading market position. Our loan recommendation has witnessed a further year-over-year revenue growth of 26%. Our in-depth cooperation with financial sector partners resulted in a rebound of our data, big data, and system-based services revenue, recording a year-over-year growth of 23.2% in the second quarter. Furthermore, we achieved high growth in our new businesses with an 88.6% surge in revenue. As we continue to improve operational efficiency and optimize cost structure, our ROI increased significantly. to 135% with nine percentage points improvement year over year. Our AI initiatives also helped in this regard. With certain AI technologies integrated into our daily operations, we have seen the benefits of efficiency enhancement. More importantly, We are approaching breakeven with a net loss margin of 0.3% in the second quarter, showcasing our steady trajectory of generating sustainable long-term growth. Now let me go through key performance highlights of the third quarter. First, being an independent open platform with diversified business mix, we delivered a solid quarter with a more balanced revenue structure. Our revenues from loan recommendation and big data and system-based risk management services continued to grow over 20% year-over-year respectively, benefiting from the digital transformation of the financial sector. In addition, our initiatives of expansion into adjacent categories and the non-financial sectors have yielded preliminary successes. The revenues in this regard achieved the year-over-year growth of 88.6% in the second quarter with continued efficiency and margin improvements. As such, the revenues from loan recommendation, big data and system-based risk management, and marketing and other services contributed 29%, 10%, and 25% respectively of total revenues in the second quarter. The revenue from credit card recommendation services decreased by 25.7% year-over-year due to the lowering market budget of credit card issuers since May. Consequently, its contribution to the total revenues reduced to 36% in the second quarter. The more diversified business mix and the revenue structure demonstrated the network effect of our platform business model. leveraging our cutting-edge technology and extending our existing marketing and acquisition capabilities into adjacent categories and industries, including telecommunications, e-commerce, and lifestyle products and services to facilitate their digital transformation. Secondly, we further enhanced our operational efficiency and optimized our cost structure, leading to a continued margin improvement. In the second quarter, the ongoing optimization of both products and monetization coupled with new partnerships resulted in a commendable increase in ROI, which stands at 135%. Additionally, in line with our commitment to innovation, we further integrated AI tools, including various generated AI solutions into our daily operations and saw many improvements in the operational efficiency, particularly for our R&D team, achieving significant cost savings. Such efforts have contributed directly to our margin improvement, and our operating loss decrease by 75% year over year in the second quarter. while operating loss margin improved by 10 percentage points, achieving 3.7%. As a result, our net loss margin reached 0.3%, approaching breakeven. Third, we continued to leverage our industry expertise and market-leading technologies and solutions, enabling our financial partners' digital transformation. Leveraging our reputation and experience accumulated from many years deep cultivation in the financial sector, we continue to explore new acquisition channels to further diversify and enhance our marketing and acquisition capabilities. For example, in the second quarter, we appointed our in-house financial experts to share on live streaming platforms of their valuable industry insights on AI, modeling, and other topics. We also established a strategic partnership with a well-known internet giant, solidifying our position as one of the few recognized platforms for financial product discovery and recommendation in the market. In addition, we continued to extend the reach of our social media marketing channels, which strengthened our competitive edge in the industry. These efforts have expanded and strengthened our long-term partnerships within the financial sector through which we are ultimately driving the digital transformation of the financial industry. We continue to deliver our cutting-edge algorithm and modeling capabilities to our financial partners under the new regulation, resulting in a 23.2% increase in revenue from big data and system-based services. in the second quarter and paving the way of collaboration with financial service providers with a broader spectrum of products and services. Last but not least, I also want to share with you some new AI initiatives have been instrumental to driving innovation. Aggregating various AI tools into an internal one-stop portal we have seen that approximately 72% of our employees are utilizing AI tools and technologies in their day-to-day work, enhancing operational efficiency in areas such as R&D, customer service, and finance. In addition to such efforts that benefit us internally, we have also been actively exploring new avenues of AI development to empower our ecosystem partners with innovative solutions. During the SIGMA quarter, we organized an AI hackathon event where several projects and initiatives demonstrated potential for further development and commercialization. Going forward, we will continue to allocate resources to drive innovation in the AI space as we strive to develop the next version of a technology-based inclusive finance business model. Before I turn to the CFO part, allow me to take a moment to discuss the microenvironment and our business outlook. Given the recent volatility, there remains some uncertainty surrounding the development and the recovery of the economy. In response, the Chinese government and the regulators have taken proactive measures to revitalize and expand market demand. with a specific focus on stimulating private consumptions. It is expected that near-term implementation and execution of additional stimulus policies will be critical to the remaining of this year. Financial service providers and other ecosystems are expected to excise their caution and continue to tighten their spending in the interim. as what we observed in the second quarter that certain credit card issuers are lowering their market budget. As a result of these circumstances, we remain cautious in our outlook for the second half of this year and will continue to focus our efforts on efficiency improvement and the cost optimization of our existing businesses. Despite the near-term impact, our dedication to executing our vision of becoming everyone's financial partner for this. And we are committed to driving the digital transformation of the financial industry, which we believe will generate long-term value for our shareholders. Now I finished the CEO part and we'll turn to the CFO part to discuss financial in detail. As mentioned earlier, We are pleased to announce a solid financial result with resilient revenue growth and healthy margin improvement in the second quarter of 2023. Our second quarter results reflect our persistent efforts in diversifying business mix, improving operational efficiency, and optimizing cost structure. Our total revenues from the second quarter of 2023 increased by 7.7% to RMB 285.5 million. Our market leading position in recommendation businesses sustained with total recommendation services stood at RMB 186.5 million in the second quarter of 2023. Revenues from credit card recommendation services decreased by 25.7% year-over-year in the second quarter, mainly due to the lowering marketing budget of certain credit card issuers. Credit card volume decreased year-over-year by 25% to approximately $0.9 million, and the average fee per credit card adds up to RMB $113.5 in the second quarter of 2023. Revenues from loan recommendations increased by 26% year-over-year in the second quarter, mainly driven by the increase in the number of loan applications by 27.9% year-over-year to approximately 5.5 million. Revenues from big data and system-based risk management services increased by 23.2% to RMD $28.1 million in the second quarter of 2023 from RMB $20.2 million in the same period of 2022. This is mainly due to the increase in average spending per customer. Revenues from marketing and other services increased by 88.6% to RMB $70.9 million in the second quarter of 2023 from RMB $37.6 million in the same period of 2022, primarily due to the significant growth of our insurance brokerage service and initiatives of other new businesses. Further proving our success in applying our strong technological and digital marketing capabilities into adjacent categories. Let me now move on to cost and expenses. Cost of promotion and acquisition decreased by 0.7% to RMB $190.4 million in the second quarter of 2023, from RMB $191.8 million in the same period of 2022. The overall ROI for recommendation services and marketing and other services improved by 8.8 percentage points, sequentially to 135.2% in the second quarter, demonstrating our continuous improvement in operational efficiency. We continue executing our cost optimization initiatives. As such, cost of operation decreased by 2% to RMB 20 million in the second quarter of 2023, from RMB 20.4 million in the same period of 2022 Our sales and marketing expenses and R&D expenses decreased by 0.9% and 16.7%, respectively, while our general and administrative expenses increased by 8% in the second quarter of 2023, compared with the same period of 2022. Measured as the percentage of total revenue, sales and marketing R&D and G&A expenses in total were 30% in the second quarter of 2023, reflecting a decrease of 3.5 percentage points from the same period of 2022. With our continued efforts in optimizing our cost structure and improving the productivity of our businesses, loss from operations was R&D 10.6 million in the second quarter of 2023. Compared with RMB 35.9 million in the same period of 2022, operating loss margin was 3.7% in the second quarter of 2023, compared with 13.5% in the same period of 2022. We are on track of approaching breakeven and the recorded net loss and the non-GAAP adjusted net loss of RMB 0.9 million and RMB 7.3 million in the second quarter of 2023, compared with a loss of RMB 35.9 million and RMB 32.2 million in the same period of 2022, respectively. Our net loss margin and the non-GAAP adjusted net loss margin for the second quarter improved by 13.2 percentage points. and 9.5 percentage points to 0.3% and 2.6%, respectively, compared with the same period of 2022. As of June 30, 2023, we maintained a balance sheet with cash, cash equivalents, and restricted cash and time deposits of R&D $668.5 million, With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. 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 momentarily to assemble the roster. And the first question comes from with . Hi, , can you hear me?

Yes, we can hear you. Oh, thank you. Thanks for taking my question. I actually have two questions. So the first one, I would like to know more about your new businesses. So can you elaborate on marketing and other services? Can you share with us what are the synergies with our existing business? And how do you see the growth potential of our new businesses? Thank you.

Okay, yeah.

Can you repeat your question? We actually can't hear clearly here in Hong Kong. I know we're closed.

Is it clear now?

Yeah, this is better. This is cool. This is good.

Hello?

Yes, we can hear you.

Okay. Sorry, maybe it was disconnected. I would like to know more about our marketing and other services, our new business. So can you elaborate on the new business and can you share with us what are the synergies with our existing business? How do you see the growth potential of our marketing and other services?

Thank you. Okay, got it. I will try to answer this question. So, yes, the JMPOO, our mission and vision is to become everyone's financial partner, right? Our users or our customers are actually customer-focused. They're actually part of our culture. Number one, they're actually adding in our culture. As we started 12 years ago, we started offering or we started partnering with loan or financial service partners such as SMEs, consumer loans, or banks, companies, critical issuers of financial or wealth management information providers, as well as other financial products. But in the last three, four years, we have seen more needs for our customers in terms of financial products such as insurance and other non-financial products such as access to better e-commerce offers as well as other offers for mobile carriers. So that's why in the last couple of years, we've changed our product offering to our customers, to our users, from mostly, of course, financial products to non-financial products. The synergies are so obvious. It's all user-driven, right? We want to actually, for users, we have multiple products. financial or non-financial, and the multiple offers, which can make them faster, easier, more convenient to get the best offer that they have had. So in this case, it can help us to build the trust and the brand with our customer better. So that's kind of the key, key, key, key, key, key benefits from the user side. From the company side, from JMPool's side, in the last 12 years, we have built a super search and recommendation and offering platform with the cutting edge technology and big data and AIs. Of course, we added the insurance Brokerage products, insurance, we added e-commerce and telecom related products. And in that case, we'll be able to lower our costs by offering multiple products to our users. The number you have heard from OSCA, we have seen this marketing trend. And new business, we have seen high growth, high double-digit growth in the last two quarters, and also with improved efficiencies, improved ROIs. The improved ROIs are not only from the new businesses, mostly non-financial products. We have seen the increased return on investment for financial products as well. So in this case, this is a win-win for our customers and for TM4. So in the future, this has proven in the future we need to still focus on the customer-driven or user-driven mindset, and we are going to optimize and further develop our business to further transform us from a product-driven company to a more user or customer-driven company. Thank you.

Is this clear? Yes, yes. Thank you for addressing your question. I have another question about our net profit. I see as we continue to see narrowing loss in this quarter, can you highlight what have we done to continue narrowing the losses? And do you expect the business to break even by the end of this year? Thank you.

David, do you want to answer her question? Or probably I can have the first cut of the, you know, to answer Kate.

Oscar, go ahead. Tony had the three minutes.

Thank you, David. Go ahead. Okay. Thank you for, yeah, thank you for this question. Yeah, I think, you know, we are approaching break-even, but not yet for this quarter. I think your question asked a about what we have done in the past several quarters to bring us here, I think that's three parts. First, of course, is the scale, and the second is the efficiency improvement, and the third is cost optimization so far. If you look into the revenue scale in the past six quarters, I think we almost recorded growth in each quarter year over year. you know thanks to our commitment you know to the digital transformation of the financial financial services industry that's what we that's part of our mission as David said become everyone's financial partner we have done this you know done this kind of business for for close to 12 years. And also, the scale also benefits from our exploration into the new businesses. That's your first question, what the marketing and other services are. the initiatives we explored in the past three years. And now it seems that we still recorded high growth, proven our capabilities to enter into these areas. And then the second is about the efficiency. You can see a sequential improvement of our ROI. The ROI means how we measure our marketing marketing and the user retention capabilities using revenue divided by our cost of marketing and acquisition. We are seeing the continuous improvement of efficiency in this regard. And thirdly is the cost optimization. We continued during the past quarters, of course, including, you know, that's including some cost-cutting initiatives. And also, it's also an efficiency gain in terms of we deployed certain AI technologies into our, to improve our cost structure. I think that's so far the initiatives and the facts we have done so far to improve our, to bring us to the approaching break-even status. But, you know, looking to the future, I think your second part of the question is about how we can break even by the end of this year. I think nothing can be guaranteed. particularly in terms of the uncertainties and the volatilities of the market environment. So if we can continue to grow the scale, improve the efficiency, and saving the cost, definitely we can be pretty even in the future. But the volatility and uncertainties may lead to something we cannot control and we cannot expect for now. So, yeah, of course, our goal is to build a healthy business to make profit. But the visibility of turning profit, of turning breakeven, you know, is I think it's not very near term. Hope that answers your question.

Yeah, I just have a few. I have a few words to add. This is important. So we were approaching the Q2. However, I mean, our business is heavily dependent on the macroeconomy of China, especially the health status of Chinese people. financial markets. We have seen some recent data last week, and those data in terms of the real estate market, the SME and the consumer loan, I mean, and also amount, and also the deposits. We definitely have seen a big decline of those numbers. So in a nutshell, Chinese consumers They are paying down or even paying off their debts. Businesses are slowing down their borrowing. And also, the risk, credit risk, or the ability to pay, the payout for consumers, at least, are actually declining. So as an open platform, we heavily rely on our financial partners, banks, non-bank finance companies, credit issuers. They have the ability to manage credit risk and manage growth and serve their customers. So we are not giving any outlook for Q3 or for Q4. It's just hard. It's tough. It's not being in the playbook of the sector with enough historical data to do the estimation of the estimation. That's just my personal take of the sector and the economy. We are the independent open platform, right? We have seen the efficiency gain in the last quarter. We are a platform. We have been improving quarter over quarter, and we are confident. We, the management team, and everyone in GenPool, we are able to execute. We are going to ask from our peers, and we're going to do better quarter over quarter. Thank you.

Got it. Thank you, management.

Thank you. And once again, please press star then 1 if you would like to ask a question. And the next question comes from Carol Yong with Jungai Securities.

Hello, management. Can you hear me?

Yes.

Oh, okay. Thank you for giving me the opportunity. I would like to know how has generated AI helped your business, and what will be your plan of AI development in 2023? Thank you. Scott, please go ahead.

Yeah, okay. Yeah. Thank you for the questions. Yeah, I think personally, you know, for the AI, I think it's due, you know, in the early stage to, I think almost in the early stage to everyone. So now, for now, what we have done is, you know, we created an internal one-stop portal that aggregating various AI tools, including large language models and other AI technologies for our internal use. So through that, we already shared some in our prepared scripts that we see significant efficiency gain in terms of using AI tools in our daily work, particularly the R&D that enhance the efficiency of our engineer to write code and also in our customer services. so on and so forth. So that's the internal part. And also we have, you know, capturing the wave of AI, we have an AI Hexon event in the second quarter. The purpose of this event is to encourage and to find some bottom-up ideas, initiatives that could be further developed or commercialized. In that event, we do find some interesting ideas, but still in the idea or demo stage. But we see some potential there. And we look forward. we can help our team to further build and enhance these initiatives and hope that can be commercialized in the future. And also one thing we want to share is you may also heard from the expert and media that if to deploy the AI particularly the large language model into certain, you know, scenario or user case, the sector expertise or the domain knowledge will play a more important role in that regard. We also believe in that, you know, theory. Given what we have accumulated in the financial services industry, including the data, the user behavior, all these could be the pre-training materials to feed into the large model. And it may turn out into something interesting. I think maybe we can add up something, but one thing we are sure is that to embrace the change from the AI technology, we definitely will allocate some resources into the AI space. And we are targeted to do something interesting, something creative, and something that can enable our financial partners to do their business better and serve their users better in the future.

Thank you.

Thank you for your answer. Just one thing to add. Like Oscar said, AI application or AI training big model is still on a very early stage, even in some bubble in Silicon Valley and in China. I just have two points. Number one, we are not going to spend $5, $10 million or $50 million to buy lots of CPUs or training We don't have that financial resources. We don't want to join that bubble. That's a clear message to our institution investors and all other investors. However, what are our strengths? We have the financial sector data. We have a lot of the feedback data of why. We are working with close to a thousand financial institutions. I mean, heavily, we've been working with them for years. We have scenarios. We have scenarios from credit cards, from loans, from insurance. In Chinese, we call , right? That's why we are able to work with a lot of the open source large models domestically to train or enhance the tools and models. That's why we are in a more stealth mode, not in a bubble mode. like develop the financial services vertical in terms of solving the problem for our financial partners as well as our customers, Chinese consumers as needs. We can help them to be leveraging AI and even the traditional models and some of the data to enhance the overall user experience and the overall digital transformation of risk management, the digital experience, and research. So that's what we positioned we are going to do. So finally, as Oscar said, we want to stress it's still early years again. There will not be a clear winner in a quarter, in two quarters. Maybe longer. We don't need the patience. We need to really work with our partners to enhance and improve the application, the tools, and the user experience. Just like GM.AI, GM.AI was founded in 2017, just right before our IPO and Jam Pool. If our friends and our investors understand, Jam in Chinese means simple, pool means inclusive. So we had a vision in 2017 to use AI to make finance simple and We continue our mission and vision to make AI simple and inclusive. So now we all know the problem for AI in other sectors, in financial sectors. It's too complicated, too difficult, too difficult for consumers. That means forbidden to use. If we focus with our mission and vision to make AI simple and inclusive in finance and other sectors, we will be successful. in the medium and the long term. So focus on what? Focus on our strengths. Focus on what we can do. Focus on our mission and vision. That's the best offer we can provide to our shareholders, and that's the best solution we can provide to our customers and partners. Thank you.

Thank you. And once again, please press star then 1 if you would like to ask a question. All right, this does conclude the question and answer session, so I would like to return the card to Li-Ting Liu for any closing comments.

Thank you once again for joining us today. If you have any further questions, please contact us at irs360.com. Thank you for your attention, and we hope you have a wonderful day. Bye.

Thank you. The conference has now concluded. Thank you for attending today's presentation. I'll disconnect your lines.