Jianpu Technology : Second Quarter 2023 Earnings Conference Call Transcript

Jianpu Technology Inc. [JT]

Q2 2023 Financial Results Conference Call

August 21, 2023, 8:00 AM ET.

Company Participants:

Liting Lu, Investor Relations

David Ye, Co-Founder, Chairman and Chief Executive Officer

Oscar Chen, Chief Financial Officer

Analysts:

Kate Luang, UOB KayHian

Carol Yuan, Zhongtai Securities

Presentation

Operator: Hello, and welcome to the Jianpu Technology Inc. Second Quarter 2023 Earnings Conference Call. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note today's event is being recorded.

I'd now like to hand the conference over to Liting Lu, Investor Relations Director. Please go ahead.

Liting Lu: 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.jianpu.ai, as well as on PR Newswire services.

On the call today from Jianpu Technology, we have Mr. David Ye, Co-Founder, Chairman and Chief Executive Officer, and Mr. Oscar Chen, Chief Financial Officer. Mr. Ye 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 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 the company's filings with the U.S. SEC.

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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 RMB.

It is now my pleasure to introduce our Co-Founder, Chairman and Chief Executive Officer, Mr. David Ye. Please go ahead.

David Ye: Thank you, Liting. Hello, everyone. Good morning and good evening. I'm still feeling under the weather with a sore throat for the past two days. So Oscar Chen will be handling the CEO part on my behalf. I will try to answer one or two questions during the Q&A session.

Oscar, please go ahead.

Oscar Chen: Okay. Thank you, David. 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 on the CFO script, and save David's voice for the Q&A part. So let me start with the CEO part 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 continued to deliver another solid quarter, benefiting from our capital-light platform model and diversification strategy, with a continuously-improving margin profile of approaching breakeven and a year-over-year revenue growth of 7.7%.

With our strong commitment to the digital transformation of financial service providers and other ecosystem partners, we continued to enhance our leading market position. Our loan recommendation has witnessed further year-over-year revenue growth of 26%. Our in-depth cooperation with financial sector partners resulted in a rebound of our 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 9 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 from the second 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

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system-based risk management services continued to grow over 20% year-over-year, respectfully, benefiting from the digital transformation of the financial sector.

In addition, our initiatives of expansion into adjacent categories and non-financial sectors have yielded preliminary successes. The revenues in this regard achieved a 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 revenue reduced to 36% in the second quarter.

The more diversified business mix and revenue structure demonstrated the network effect of our platform business model. This includes 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.

Second, we further enhanced our operational efficiency and optimized our cost structure, leading to continued margin improvements. 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 generative AI solutions, into our daily operations and saw many improvements in 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 decreased by 70.5% 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 of deep cultivation in the financial sector, we continued 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

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industry. We continue to deliver our cutting-edge algorithm and modeling capabilities to our financial partners under the new regulations, 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 in 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 second 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 the 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 macro environment and our business outlook. Given the recent volatilities, there remains some uncertainties surrounding the development and the recovery of the economy. In response, the Chinese government and regulators have taken proactive measures to revitalize and expand market demand, with a specific focus on stimulating private consumption. It is expected that the near-term implementation and execution of additional stimulus policies will be critical to the remaining of this year.

Financial service providers and other ecosystem partners are expected to exercise 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 budgets. 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 cost optimization of our existing businesses.

Despite the near-term impact, our dedication to executing our vision of becoming everyone's financial partner persists. 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 will turn to the CFO part to discuss financials 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 RMB285.5 million.

Our market-leading position in recommendation business sustained, with total recommendation services, stood at RMB186.5 million in the second quarter of 2023. Revenues from credit card

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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 edged up to RMB113.5 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 RMB28.1 million in the second quarter of 2023 from RMB22.8 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 RMB70.9 million in the second quarter of 2023 from RMB37.6 million in the same period of 2022, primarily due to the significant growth of our insurance brokerage services 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 RMB190.4 million in the second quarter of 2023 from RMB191.8 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 continued executing our cost optimization initiatives. As such, cost of operation decreased by 2% to RMB20 million in the second quarter of 2023 from RMB20.4 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 RMB10.6 million in the second quarter of 2023, compared with RMB35.9 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 recorded net loss and non-GAAP adjusted net loss of RMB0.9 million and RMB7.3 million in the second quarter of 2023, compared with a loss of RMB35.9 million and RMB32.2 million in the same period of 2022, respectively.

Our net loss margin and 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 RMB668.5 million.

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