Jianpu Technology Inc. (NYSE:JT) Q1 2019 Earnings Conference Call May 28, 2019 8:00 AM ET
David Ye - Co-Founder, Chairman and Chief Executive Officer
Oscar Chen - Chief Financial Officer
Conference Call Participants
John Cai - Morgan Stanley
Wendy Chen - Goldman Sachs
Julie Hou - UBS
Hello, and welcome to Jianpu Technology Inc.'s First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.
At this time, I would like to turn the conference over to [Indiscernible} Jianpu's Investor Relations Manager. Please go ahead.
Unidentified Company Representative
Thank you, operator. Please note the discussion today will contain forward-looking statements relating to future performance of the Company. These statements are within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the Company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion.
A general discussion of the risk factors that could affect Jianpu's business and financial results is included in certain filings of the Company with the Securities and Exchange Commission. The Company does not undertake any obligation to update this forward-looking information, except as required by law.
During today's call, management will also discuss certain non-GAAP financial measures, for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see our first quarter 2019 earnings press release issued earlier today via wire services and also posted in the Investor Relations section of our website.
As a reminder, this conference is being recorded. A live webcast and the replay of this conference call will be available on the Jianpu website at ir.jianpu.ai.
Joining us today on the call from Jianpu's senior management are Mr. David Ye, Co-Founder, Chairman and Chief Executive Officer; and Mr. Oscar Chen, Chief Financial Officer. I will now turn the call over to Mr. Ye, who will provide an overview of the Company as well as performance highlights of the first quarter. Mr. Chen will then provide details on the Company's financial results and business outlook before opening the call for your questions.
Mr. Ye, Please go ahead.
Thank you. Hello, everyone, and thank you for joining us today. We continue to be the largest independent open platform for discovery and recommendation of the financial products in China connecting more than 120 million users with over 220,000 financial products and 2500 financial service providers.
During our last quarter’s call, we shared again the story of how Jianpu was founded from that moment our mission was to become everyone’s financial partner empowering users to make smart financial choices and enabling financial institutions to make better decisions. We couldn’t have imagined that the technology through the converged with the social change and transformed financial service industries.
Jianpu’s business is driving this social change and improving the life of many consumers and as more businesses who otherwise lost have the opportunity to benefit from or have access to services from traditional financial systems. We are also educating the next wave of mobile financial consumers Generation X and Z to be able to utilize financial services to their advantage and to do this responsibly.
I am very proud of what we have achieved. Through our continuous efforts and investments, we have built a scalable platform model and further proven that profitability is a natural result when it reaches the critical mass with efficiency.
Let me walk you through some of the key business highlights of the first quarter. We delivered another solid quarter showing strong revenue growth across our line of businesses. Revenues from our loan recommendation service increased by 170% year-over-year. Revenues from credit card businesses were up 80% year-over-year and revenue from big data, risk management service grew 518% year-over-year.
To put our financials into perspective, in relation to the industry, most recently, few commission regulatory announcements were made with regard to how China’s all in consumer-related industry will be managed. The directional clarity of these proposed set of rules will create standards and boundaries rewarding those industry participants with innovative infrastructure and the capability to manage user experiences and the risks effectively and efficiently.
As the leading independent open platform, we are uniquely positioned to leverage our proprietary data insights and the technological capabilities to enable financial service providers to capitalize on this digital wave across the finance industry to drive customer acquisition, improve operating efficiency, credit risk management and optimize decision-making processes.
During the first quarter, we continued to deepen our relationship with financial service providers while maintaining the largest network of online credit card issuers with 25 credit card banks on our platform.
For example, we extended the co-branded credit card collaboration with more card issuers addressing their need to target a large underserved base of customers such as consumers in second and tertiary cities for those never have used credit card before.
We launched a multi-pronged collaboration with a top bank including offering consultancy services in marketing channel management, turning experts on digital marketing practices, big data and also designing credit card products.
Regarding scheduling, our branded big data and risk management service, we continued to strengthen our cooperation with bank partners and other licensed financial institutions. We have recently completed the development of a credit card pre-approval model which is designed for a regional bank to help optimize its credit division partners by leveraging our data and technological strengths.
This will increase the approval rate as the regional bank move its credit card businesses from offline to online not only actually able to provide bank partner with the strong solution, it also helps online lenders and the consumer finance companies build a risk management engine and optimize on our risk management credit model.
This helps improve on making important decisions, reduced default rates, increase operating efficiencies and improve revenue.
In addition to the business aspect, I would also like to take this opportunity to welcome Oscar, our CFO to our Board replacing Ms. Fan Yuanyuan. Ms. Fan starting to serve as our Director since 2016. It has been a great pleasure working with Ms. Fan over the last few years. On behalf of the Board, we thank Ms. Fan for her dedication and contribution to Jianpu, at the same time, we are excited to have Oscar on Board.
Oscar has extensive experiences and expertise in areas of management, strategy, investment and the capital markets, as well his strong leadership, will be a good fit to our Board.
As a follow-up to the airing of CCTV’s 315, we completed an internal review of systems, products, and processes. Our mobile APPs were made available again in early May on some application stores and we expect a free fuller launch in June.
In the mean time, we continue to drive certain sales and process improvements to our internal processes such as adopting more stringent partner onboarding process while adhering to a stricter platform policies for financial service providers. We have engaged global a consultant firm to assist us in the review of our business process coupling in-depth industry studies and recommend best practices.
We were invited by the National Internet Finance Association of China, NIFA at Beijing Finance Industry Association to participate in developing standards and defining best practices in terms of the retail financial industry in China and also the financial consumer rights protection and education.
We were also appointed as a member of the committee of the Association with respect to financial education and consumer rights protection. At the same time, our Regulatory Technology or RegTech teams also won a few important mandates to help local Chinese financial regulators establishing systems to monitor financial products at the service over time.
We already managed on our platform model, and market position by the regulators will continue to contribute and the deep – of insurance introducing and promoting higher industry standards and best practices.
Jianpu was also recently invited to financial services leadership – during the 2019 , for Asia and there was also a FinTech Seminar hosted by the Institute of Financials and the National Institute of Finance and Development of China, Academy of Social Science.
We are very optimistic about the huge market potential in China retail finance industry in the long run as the digitally or increasing financial sectors is emerging in this nation. As cutting-edge technologies like AI, big data, cloud computing and in the future, 5G is reshaping the financial service industry connecting Chinese consumers and SMES with financial service providers smarter, more efficiently and effectively.
With our continued efforts to strengthen our operational capabilities to provide better products and services to our customers, we are optimistic about our growth and our performance for the intermediate to long-term future.
With that, I will now turn the call over to our CFO, Oscar Chen, who will discuss our financial results.
Thank you, David, and hello everyone. We are pleased to deliver another strong quarter highlighted by total revenues of approximately RMB655 million, a 95% year-over-year increase beating the high-end of our guidance by 4% and net income of RMB19 million and a non-GAAP adjusted net income of RMB47 million representing 22% increase on a sequential basis.
Strategically, we continue to executing our growth initiatives, while optimizing our operating efficiencies. Led by the loan recommendation services and the solid contribution from the credit card business, our total recommendation services revenue reported 101% year-over-year increase to RMB582 million in the first quarter mainly driven by a 170% year-over-year increase in loan recommendation services further illustrating the comprehensive capability of our platform model capturing market demand, as well as our execution strategy.
As David noted, loan application volume increased 102% year-over-year. The average fee per loan application continues to grow to RMB17.7 from $MB15 in the fourth quarter of 2018. As a result, loan recommendation revenue reached RMB433 million in this quarter exhibiting a strong increase of 170% year-over-year.
Combining the credit card business from both recommendation services and advertising, we recorded credit card volume of approximately RMB1.6 million in the first quarter of 2019. The average fee per credit card increased to RMB106 from RMB95 in the first quarter of 2018.
As a result, revenues per credit card both recommendation and advertising services in the first quarter increased by 18% to RMB170 million from RMB144 million in the year ago period.
Among the revenue generated from advertising and marketing services and other services, our big data and risk management services track a very strong performance growing 518% year-over-year as financial service providers continue to engage us for our big data and risk management services offering.
As we told we have not only to grow market share, but advocate new and existing segments of the population with regards to financials service offerings. We look to achieve growth with efficiency in mind. To illustrate, gross margin improved to 91% in the first quarter of 2019 from 85% in the year ago period.
Also sales and marketing expenses excluding share-based compensation as a percentage of revenue decreased to 68% in the first quarter of 2019 from 77% in the year ago periods and 71% in the prior quarter.
As we remain strategically focused on strengthening our technological capabilities, while optimizing technology infrastructure. R&D expenses excluding share-based compensation increased by 87% year-over-year to RMB78 million.
Given the operating leverage we have, the R&D expenses as a percentage of revenue decreased to 11.9% from 12.4% one year ago.
Our G&A expenses excluding share-based compensation increased to RMB31 million in the first quarter from RMB9 million in the same period of 2018. The increase was primarily due to the one-time fee for new business initiatives and increase in payroll costs.
From our discussion above, the scale and efficiency led to profits on both net income and non-GAAP adjusted net income. Non-GAAP adjusted net income reached RMB47 million in the first quarter of 2019 and net income was RMB19 million, at the same time, non-GAAP adjusted EBITDA increased to RMB56 million, up 4% sequentially.
As of March 31, 2019, we maintained a strong balance sheet and cash position with cash and cash equivalents with restricted time deposits and short-term investments of RMB1.4 billion and working capital of approximately RMB1.3 billion.
The share repurchase program starting from August 2018, our Board approved the share purchase program with a total authorization of U.S. $13 million. As of May 27, 2019, the company has repurchased approximately U.S. $26.8 million of shares under this program.
Then outlook. Regarding our guidance for the second quarter of 2019, we anticipate a one-time short-term impact on our financial results as a result of 315 nights. Reason being that, we voluntarily suspended the APP downloads for our own self-review from March 15 and we are now in the process of relaunching towards next month and at the same time, we are optimizing our efficiency of acquisition, recommendation and operation.
Based on the company’s current estimates and expected short-term impact, we expect total revenues for the second quarter of 2019 to be approximately RMB360 million to RMB380 million.
Given the optimistic view of the industry in the long run it was more regulatory cloudy and visibility and our resilient platform model and strong technology infrastructure, we are confident and optimistic about our ability to overcome the temporary challenges in the second half of this year.
With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please go ahead.
[Operator Instructions] The first question comes from John Cai of Morgan Stanley. Please go ahead.
Hai. Management, thank you for taking my questions and congratulations on the strong first quarter. I have three questions. The first one is on the credit card. I noticed that the product on a year-on-year basis seems to be low end to single-digit, just what’s the reasons behind that? You said something what was the rate that you are looking for the full year this year?
And the second question is on the loan business. I think, the average fee per loan obviously have a strong growth, just wonder what’s the trend we are seeing now and what’s the order for the rest of the year? And the third question is on the outlook or maybe our current operations of 30, 315 Nights.
So, I think, we have outlook revenue numbers here. Just wonder how we think about that is, because most of the quarter-to-date operations have been, we don’t have our APP available for download from the AppStore.
So, this revenue is mostly coming from the exclusives and it’s “a ton” so the decline is mostly driven by loan or how should I think about the mix between credit cards, loans and others and operational-wise in terms of sales and marketing, I guess, we are also scaling back from customer acquisitions. So just maybe some more details on the operational-wise after the 315 and how we put to help us better understand the revenue outlook here and obviously, we relaunch the APP next month.
So, what’s the revenue outlook, maybe in a general sense for the second half this year? Can you go back to, maybe first quarter-over-first quarter of this year? Thank you very much.
Thank you, John. This is David. I will start – I guess, three questions. I will answer the first and maybe take the first and then maybe Oscar will continue, okay. First question about the first quarter credit card business, we grew 17% year-over-year. That’s a 17% increase and we do accept the growth rate, well, maybe higher for the second half of this year. The reason, 17% year-over-year, three reasons, let it be this, what we said, the first one is seasonality-driven. This year, the Lunar Calendar of the Chinese New Year is February 4th or 5th actually is less ten days earlier compared to last year, the Chinese New Year last year was about 14th or 15th. So we effectively lost a ten days of the business, because credit card business – the bank closed their book before the Chinese New Year, the business would not have – here three or four weeks after the median stays. So that’s the seasonality reason. The second reason of course, we do have some impact in the – for the half amount business in March, we do have some impact on that one. The third reason for Q1, last year, some of the credit cards issuers actually front-loaded their marketing budget in Q1 and this year due to seasonality, due to reasons and credit card issuer actually did not front-load their marketing budget in Q1. And you know, they have budget. They had a high - of achieving growth of the credit card businesses, especially in each of those channel online, you know, they are going to use the money in Q3 and Q4. So, as a team you know we don’t have any constraint regarding the business growth for the rest of this year.
The first part is the credit card, maybe I will – I would take step back for the third question about 315, okay. 315 do have impact on our businesses. But we believe this is only a one-time and short-term one-time impact, okay. As we know, we won’t until we suspended some of the APP downloads from major, major stores and also some of e-monitory pause as well.
So, basically, it took us couple of weeks to – we have to go through our internal review process and so we put together more stringent rules in terms of the financial institution listing and also product listing. We also basically, we also took some time to communicate with the regulators. We also took time to build the standards and the process to improve novel pockets.
So that’s why we did not re-list some of the APP until mid-April or early May. It’s still ongoing process. So, we expect most of the APPs will be fully launched – fully relisted in June. So that’s why we believe we expect the impact is a one-time in the short-term. We do expect this last one maybe one half to maybe two quarters. We should be able to recover in the second half of this year.
So I would say, give us some time, we will have more time, give us some time, we may have more data points to evaluate the impact on our growth and profitability. So, no matter what this impact – one-time impact will be on us in the short-term.
We are optimistic in the medium to long-term in giving - revisiting our business model, our technology, our robust infrastructure, and also most importantly, our people, we are able to execute and deliver. So we are still targeting to achieve full year targets for the whole year. But that’s here in the past.
Okay, I think, John, I will answer your second question about the unit price of the long recommendation services. I think the answer is, straight-forward and in short and we raised the price for the loan recommendation services. Of course, you know, it’s the – probably, we communicated before for this year we had a plan – we do have a plan to raise price of the loan recommendation services. So we did it in the earlier first quarter. So this is why you saw the price increase for the loan recommendation services.
Thank you. Just a quick follow-up on the quarter-to-day operations maybe on the sales and marketing. Cane we have more details on that? I mean, given the APP suspensions, the do you spend in the sales and marketing or you scale back on that? Thank you.
Yes. Sure, John. I hope we would have more data to answer this question. But at the current stage, we have some – we do have some APP our APPs available in some APP stores. But we are in the process of fully relaunch towards June. So, as of now, I think we have limited data to evaluate the operating – the sales and marketing efficiency for this quarter. But I want to refer you to the last two quarter numbers.
When you see that we achieved the scale and we improved the efficiency in the first quarter last year and in the first quarter of this year. I’ll say with that, probability is efficiency gain, operating leverage, and probability is the natural result of the scale and efficiency.
I think, probably for our next conversation, we will – when we get a full relaunch of APPs in June and we continue to optimize our strategy in terms of acquisition and recommendation, probably at that time, we will have more data to share with you guys in terms of how we evaluate the efficiency and some other metrics after the 315 issue.
Thank you very much.
Thank you, John.
The next question comes from Wendy Chen of Goldman Sachs. Please go ahead.
Hi, thanks management for taking my question. And I have two questions. First, a follow-up on the second quarter guidance. Just wondering, if management can you share or dissect the year-on-year decline on how – which part of our business is more impacted by the 315, is that more on the loan business or is it on the credit card business?
And the second question is on the sales and marketing follow-up. So just wondering have the management observed any change in the pricing on advertising – advertisement as we see our some advertisement platform have been saying the price has been gradually muted for the past quarter, because of competition.
So, just wondering have Jianpu observed such a trend in decreased pricing in advertising? Thanks.
Okay, Wendy. Let me take your first question about the second quarter breakdown. I think, so far second quarter guidance for the second quarter. So, we are seeing the continuous growth of our credit card business and also the – our marketing and advertising services and other services.
These two lines – I think both year-over-year and quarter-over-quarter, we should be able to contribute – we should able to drive the growth. I think the – we will see downward trend of our loan recommendation business, reason being is still that, our suspension of APP downloads. So that’s to some extent have some impact on our new user acquisition momentum. So that will be the major impact. So, in terms of the number we provided of our guidance, I will say, I would expect the loan recommendation business would be 30% to 40% of that number. Credit card would be 50% to 60% of that number. And the third business line, the sales and marketing advertising and marketing, and other service of course behind we think that the main driver was the big data and the risk management services. So that’s the third line will contribute around 10% of my total revenue for the second quarter.
Okay. Wendy, for your second part of the question was sales and marketing. In Q2, we did observed that the market – there are actually pretty – more action of course, we were in the past – we were actually the largest pass on, we were in a much high and of course less concessions in the market actually we did the business, the products actually are not as competitive as before.
We did see some brand new trends in the cost side. We are – in Q2 most of our revenue in the loan side either from repeat customer, from organic traffic, or due to our internal – like, user-generated content, so, like, the completion campaign. So, we did in the good extent, much money on sales and marketing. That’s already, we could even spend money to pay for the downloads, right.
But going forward, as we resume the fuller version in June, in Q2 of course, we will be doing to, number one, we need to still have singular ruling in terms of the front-end loading process and number two, we have to make sure, we work with the industry to based on the in-depth retail financial standard or process standard, we have to make sure the standard in grades.
Then number three, we need to optimize our recommendation and optimize the engine to make sure our users have the best user experience and finds the right product that can be served or approved by the financial institutions. So that’s some of the efficiency we have regained – we give or take, but we do see that our efficiency will be fully expanding or resumed to the normal time for the second half of this year.
Thanks very much.
Thank you, Wendy.
[Operator Instructions] The next question comes from Julie Hou of UBS. Please go ahead.
Yes, hi. Hi, David, Oscar. Thank you for taking the questions. I have three questions. First, can you share the revenue split between banks, by just FFTs and taking new both lenders as you did in previous conference calls?
And the second question is, in terms of number of loan applications, what is the split between consumer loan, SME loan and other loan products as we know with banks as well as banks are accelerating lending to MSEs. So, I just want to know if our company will benefit from such trends and to reach out more on SME loan products. And my third question is on credit card applicants, primarily of some of the first time users, and for those who already have credit cards, how many cards you still have on average? Thank you very much.
Thank you, Julie. Let me answer your first question regarding the revenue split. So, for the first quarter, for the revenues, we have around 40% from the banks including credit cards and the loan recommendations. We have around 30% from the non-bank, non-bank licensed financial institutions, that’s mainly the consumer finance company internet micro lending company and local micro lending company and trust company.
That’s 30%. So, and our revenue exposure to the P2P companies arise a bit in the first quarter of this year. They contributed around 20% of the total revenue. And the remaining you will imagine comes from the advertising services and risk management services. So that’s roughly tells. So, I think the reason behind is that, in the first quarter we saw strong growth momentum in terms of loan recommendation.
Among that, non-bank licensed financial institutions and the P2P companies play more important role, so, to grow our loan recommendation business. But we think we still keep a healthier and revenue structure from the different types of financial service providers.
So, that’s your first question. So, to your second question, the loan product, yes, SMEs, so, so far our platform, we do listed some SME products, but in terms of the number of loan applications towards the SME lending products is only lower percentage as you can be aware that SME lending for the digitalization, for SME lending it’s far behind and more complicated than the consumer lending.
But because, we have very positive products here, the company wants to promote the SME lending. So we do have some initiatives in terms to expand our SME lending – not our – as a SME lending product on our platform. So we believe digitalization is the trend and it will bring us with the scale and the efficiency.
So, I think there will be some as large more data regarding the SMEs will be available online through mobile. At that time, we will see more and more SME lending on our platform. And also, I would share a bit insight about SME lending.
So, you just imagine as it’s more digitized SME lending, given that traditional banks, their capability, their cost of structure probably it’s the – it’s not a immediately for them to do the SME lending correctly. Probably there will be some third-party players like us – like other supply chain, long facilitation model, the guys owns the data, owns the data of the SMEs may be able to play an important role of the SME lending.
Yes, I think, it’s putting the market into perspective, we do see like, the auto loan market is high growth, getting more digital and more decisions will be made leveraging data, leveraging online, leveraging AI. And of course, SME lending, government actually has asked the financial institutions especially banks to resume more capital on SME lending.
We see that in the high growth markets and supply chain management as Oscar mentioned that, the other side of the balance sheet or the wealth management kind of ensuring we haven’t talked about it. Of course, the insurance market has high potential. The wealth management we are seeing some regulation basically relaxed the KYC process of opening like money market find or the wealth management find online.
So, you definitely see opportunities of growth in those segments in the financial industry. Of course, the challenges are, regulatory side, number one, number two, if regularly – those products can be sold online and also how technology will drive better user experiences and making the products can be serviced online. So that’s is a key kind of hurdle. But we do see opportunities in those segments.
Julie, back to your third question regarding the credit card user profile on our platform. Firstly, I don’t have the full picture statistics of the – whether it’s a first card user or most card user. But we through our communication with the banks, we guess our most value proposition to the credit card issuers is that we can bring the under bank population to them.
That means, the majority of the users acquired on our platform would be the first card user. But secondly, I want to emphasize, second card or third card is not something we should be afraid of or we should be alerted, because you are just looking to the numbers of the some developed countries. So, four or five cards per captcha is still a reasonable number of the developed economy.
So, in China, I think certain developed cities and in coastal cities like Shanghai, Beijing, and Guangdong or Zhangzhou provinces, I think, I believe that credit card it comes there mostly will be the multi-card holder, maybe as high for the second or third credit card.
But the credit card that comes from the third and fourth tier cities, that mostly of them will be the first card applicant. So, yes, I think that’s the answer I can provide for now. Probably, we can communicate with the banker more to understand the user profile from their perspective.
[Operator Instructions] And that concludes the question and answer session. I would like to turn the conference back over to management for any closing or additional comments.
Unidentified Company Representative
Thank you once again for joining us today. If you have any further questions, please contact us at email@example.com or TPG Investor Relations. Thank you for your attention and we hope you have a wonderful day.
Thank you, everyone.
The conference has now concluded. You may now disconnect your line at this time.