Q3 2019 Earnings Call

After today's presentation, there will be an opportunity to ask questions.

No <unk> over a jury speaker hosted D destroys Tang the company's Investor Relations Director. Please go ahead.

Hello.

Welcome to the first nine month, two dozen Nike and these conference calls feedstock the Companys financial and operational results <unk> earlier today and I posted online you can also view any treasury. These by beating the IR website at <unk> P.M. title called <unk>.

We play on the coal will be available on the IR website in a few hours.

On today's call Mr., Alan Dome, Jan and I can't I think the old <unk> and 51 thing the Apple pay tax mentioned I will begin with the prepared remarks called will conclude with a good <unk> session.

Well, we continue please know that todays discussion will contain forward looking statements may under the safe Harbor provision.

The U.S. Party Securities Litigation Reform Act 1995.

Well I'm looking statements <unk> and I couldn't do.

Such the company three now maybe materially different from the views east dress to date.

<unk> and other risks and uncertainties, including in the Companys prospectus and out of comedy fighting, it's as filed with the U.S. The Securities Exchange Commission.

The company does not assume any obligation to update any blondo kids Damon.

Actually require onto the applicable.

Please also note that pincus any press release and this conference call include discussion or do you get my naturally inflammation as well as on all these non-GAAP financial measures.

He just press release content early consummation of the or did not get measures to the on all the most directly comparable GAAP measures.

I'll now turn the call went to our chairman Mr. Alan.

Alan Please go ahead.

Thank you Joyce Hello, everyone. Thanks for joining this call today.

Before I discuss all business development seem to first nine months self to southern 19th and ours growth strategies going forward I like to highlight some of our key financial and operating results during that period.

The first nine months of 2019, a total facilitated with 9.5 billion RMB compared with RMB 11.6 billion hemostat paired off 2018.

As we continue to face tried and true challenges in the Michael environment and industry conditions with mine a decrease of total revenues to 776 RMB Milton.

<unk> 837 million arm, beating the same period of 2018.

Gross profit increased the by 26% to 474 million from 375 million in a same period of 2018.

While gross margin expanded to 61% from 45% in the same period of 2018.

Furthermore, adjusted net income increased by 225% 248 arm merely RMB from 46 million on being the same period of 2018.

[noise] any marlin self met coal market volatilities and directly to.

And the regulatory headwinds, we continue to focus on leading solution business lending solution business with healthy modest developments of international business.

The strategy is to deepen core capabilities of technology and appreciate suit leap lending solution and the built Brent by serving handful important customers seem to international market.

During the third quarter 2019, we proactively optimized the following three areas around all focus off lending solution business.

Structure of funding source is the first area that while focusing on optimizing.

Second product mix and the third our cost structures.

The successful improvements off this core areas has bolstered our red resilience to on certain medical conditions filled the competitive advantages so far our services.

And boosted our operating leverage in return.

[noise] first to continue improving structural funding sources during the quarter, we focused on strengthening services to license the financial institutions, along with bolstering our digital lending solutions business and its revenue generation capabilities.

Such efforts.

Further diversifying our funding sources and they reduced our reliance on specific institutions.

During the third quarter boxes on a 19 for example, the total volume of loans. We we facilitate age was 2.47 going on B.

Meanwhile, 93% of the total loan volume in the quarter was funded by non PDP financial partners.

Paired to 76% in the prior year period.

Additionally, normally I told all the new loans was 4.55 buildings in the quarter six 7% of which was funded by non P to P financial institutions compared to just 34% either in the pure rate you appeared.

[noise]. This achievement is it results off while I'm going efforts to strengthen relationships was all financial partners by leveraging our state of art.

Technology, and leading service capabilities.

I think certainly partners that we have worked with closely for an extended period of time, including well toll Internet Michael ending license.

Full it's in credit industrial count consumer finance.

Money and even on International Trust company.

Consistently increased funding supply to us.

In fact, this partners have funding, 6% to 60% of the total volume alone facilitated into southern 19 to today.

Which further illustrate our capability to build trust and the devout more closely night relationships with our financial partners over time.

[noise] as our services continue winning confidence trunkline send a market.

The better payment structure is being accepted under the new payment structure. Some clients will cover the initial R&D expenses for deployment, how far technology solution.

And we'll continue to charge fees based on their performance thereafter.

The adjustment.

Not only enhance the health off all cash flow, but also better facilitate the sustainable expansion all far technology solution business.

Second.

Fulfill our goal of serve.

Serving prime and Neoprime market segments, maintaining stable credit performance at a building premier Brent.

We continue to optimize our product mix was focused on high quality personal loans.

So business partners with point of cells during the quarter.

This was accomplished through all of our existing business park partnerships across industry segments.

As a result of his efforts the volume of personal loans generated from point of cells installments accounted for 82% of our total personal loan volume and 58% about total on volume doing to sort of caught up to southern 19.

[noise] porno sell cells installment loan users, especially those acquired from our cooperation with online travel agencies and the tech and telecom object operators have a higher consumption power and are more likely to make that repayments on time.

Recall organizing this trend we continued to expand our cooperation with online travel.

Bunnies, such as see trip Treanor.

During the quarter as the results are putting themselves installment loan services made accessible to all registered users, both say trips and Trina platforms.

Contrasting our previous system in which such services will only available to those users in need of point of south installment loan services [noise].

On the telecom carrier front.

We continue to fortify our partnerships with all three dominant mobile telecom operators in China, China, Mobile, China Telecom and China Unicom.

China Telecom for example has more than 300 million users nationwide and has been utilizing our handset financing solutions since 2017.

Moving to yourself. This partnership where served 1.6 million of China telecoms users to facilitate more than 1.6 billion in loan accumulatively.

Our services now cover about 70000, China telecom branches nationwide and have meaningfully improved the performance I'm trying to telecoms Henson handset cells.

Nonetheless, the overall penetration of our services, they still ramping up and has substantial headroom for future growth.

[noise] third.

Well, we're focused on optimization off our cost structure.

As such with flattened our organizational ranks streamlined our operation procedures and the types in low cost control measures during the period.

For example, but be spending our strategy and the science department as well as operate in design centers, we're able to scale down number of organizational layers reduce all labor costs and deploy this personnel back into this business segments, which have more direct impact on the development of.

Our business and revenue.

Wherever it will also adopting a more straight stringent review process for our investments and implemented to clear Capesize far wealth management and E Commerce departments.

Any forward such off optimization with further support but I believe he to weather potential market uncertainties and the met coal headwinds.

Beyond the improvements all five domestic business. We have also continued to expand our geographic footprint.

Following the establishment of our business a line aligns earlier into southern 19 with east to West the bank.

One of the largest independent bank.

Had a quoted in cells in California.

We successfully leverage all leading financial technology capabilities, and a deep industry experience to provide the bank with digital banking services and the supports your digital transformation.

In response to the banks positive feedback we plan to help would be with these branding efforts in China to facilitate additional collaborations between the bank and the other potential domestic foreigners.

In addition to our ongoing success with <unk> East West Bank.

Far risk our wholly owned.

Subsidiary, basically Australia recently announced expansion off his partnership with Toyota Financial services.

Subsidiary of toward our model Corporation, the worlds largest carmaker under the new partnership you far risk will leverage its capabilities in big data analytics cloud computing and AI technologies to pull light height highly efficient cloudy management solutions to Toyota financial service.

In both Germany, and Australia, and both Germany and Austria.

This solutions will enable Toyota financial services to better execute its credit process.

Facilitate lending to dealerships and a managing.

Larger feet larger fleet tell if the customers.

In regards to the recent management changes due to personnel house, Oh, well family considerations all parties remain on good terms.

Yeah addition, this personnel are still actively serving as consultants to the company on behalf of Ping Tech and the board I would like to thank those individuals.

Who left for their dedication and it continues contribution to the company.

Currently you show all business units is beans spearheaded by member off our experienced executive team.

I'll quote <unk>, our core operations team remained stable and our partnerships have not been affected.

[noise] in summary, I'll focus on optimization of our business in the third quarter has helped to refine efficiencies a far operations well only you are a competitive.

Contagious Oh unique suit all financial services with leading risk management capability.

Technology technical services to improve operating efficiencies and Internet based end user services continue to drive our core value proposition.

Importantly, our digital lending solution is now cover and extremely comprehensive range of customers.

Demographics, and the consistently generate a healthy or healthier flow of the traffics.

Both of which all financial partners funding extremely attractive.

Looking forward, we're confident in a pull Tennessee off our organizational frameworks.

That's sofar talent pool uniqueness off our solutions and long term the ability of our business strategies.

Despite the current challenges in the macro environment, believing the strength of our core business.

Risk management culture, and our at equity valuation will eventually come to reflect the fundamentals over time.

Thank you very much with this I like to turn call over to Steven.

Our CFO to discuss all financial results.

[noise]. Thank you Alan Hello, everyone. Please note that unless otherwise noted on number state the in the following remarks in RMB tones, and well rounded to the nearest Miller.

Before I start reviewing all financial results I would like a knows that today our board of directors.

Has approved a share repurchase program.

This program will allow us to buy back up to U.S. time Millen.

Dollars' worth of Oh adss in aggregate value.

Both decision expresses coffee business and how long term growth <unk> growth prospects.

Reflects all shared belief that buying back shares.

A good investment opportunity for the company.

Now, let's move onto all financial results in the first nine months of 2019, although revenues decreased by 7% to 776 million revenues from Tenneco service fees increased by 10% of 643 million first nine months opinion 19.

From 586 million in that same Peter off 2018.

Primarily as a result guarantee provided under the new business arrangement between the company and the Cima.

Revenues from our installments service fees, which accounted for about 15% of all told the revenues.

Chris 240 million in the first nine months opinion 19 from 241 million units AMPU at last year.

The decrease was that's a result of reductions dongbu installment loan volumes and the language with which is with the company strategy of improving portfolio structure.

Revenues from a wealth management services fees increased by 87% a 19 million in the first nine months opinion liking from 10 10 million the same period last year.

The increase was primarily primarily attributable to the development and expansion of our wealth management services and in particular, our insurance solutions.

Cost of revenue decreased by 35% to 300 and treat millen into first nine months of 2019 from 460 treat me alone in the same period last year.

As a percentage of total revenues I'll call. So revenues decreased to 39% in the first nine months of Tony 19 from 55% in the same period last year.

The reduction was mostly due to lower volume up on book loan business in the first nine months opinion, 19, which led to lower funding costs and provision for credit losses in the same period.

In addition, we also expanded our business partnership partnerships, while strengthening our brand influence, which enabled us to further reduce our customer acquisition costs.

Consequently customer acquisition costs related to origination and service servicing costs decreased by 19% year over year 222 million in the first nine months opinion lighting [noise].

Gross profit increased to 400 474 million in the first nine months of 2019 from 375 million in the same period last year.

By refining all cost structures, we successfully expanded our gross margin of 61% of first time on the first nine months opinion 19.

Ah compared with 45% in same period last year.

Total operating expenses increased to 343 million in the first nine months of 2019.

289 million in the same period last year.

Let's now review the breakdown of operating expenses for the first nine months opinion lighting.

Sales and marketing expenses decreased by 14% to 60 million first I must have 20 nitin.

Compared with 70 million in the same period last year. The decrease was as a result of ongoing efforts to optimize I'll put ultimate matrix.

And the winding down all of our offline personally installment loan business.

The lateral which has been occurring since the end up any 18.

As Alan mentioned earlier, we have also improve our marketing efficiency by dissolving all offline direct marketing divisions, which significantly reduce our offline marketing and promotional expenses in the first nine months of 20 Nike.

Research and development expenses increased slightly to 61 million plus nine months opinion, I didn't compared with 60 million a same period last year. So we continue to invest in the recruitment of pellets and enhance our R&D capabilities.

General and administrative expenses increased to 222 million in the first nine months of 29000 560 million a superior last year. The increase was mostly due to a higher bad debt provision related to the service fees depletion depreciation and amortization of intangible assets.

Professional service fees associated with being a public company.

Operating profit was 131 million in the first nine months opinion Nitin compared with 86 me like a same period last year.

Net income increased by 630% 250 million in the first nine months of 2019 from 60 million that same period last year. The increase was driven in aggregate by the foot income.

Tax benefits of 56 million, recognizing pinion 19, but not previously available 2018.

They shouldn't we also recorded 36 million accumulate the interest income from a loan me to achievable.

Just a net income increased by 275% 248 million in the first nine months opinion 19.

Pet with 46 me the same period last year.

The GAAP and non-GAAP net income for ordinary shares were RMB 38 cents and RMB 49 cents, respectively. In the first nine months of 2019th.

Now, let's turn to abandon should.

So September 30 opinion 19, we had a combined cash and cash equivalents.

Including restricted cash of 608, mila compared to 710 million.

As of December 31st 2018.

So the net financing receivable, including short term in long term receivables declined to 262 million Adeno September 2019.

Compared with 772 million self December 31st 2018, the decline was mostly due to the winding down all of our own book installment loan services.

And she quit asset like shifted to an asset light model.

Looking ahead, we will continue to invest in April if one of our product offering and technological capabilities.

No, we face regulatory and macro uncertainties as far as industry wide challenges.

We remain confident in the long can sustainably deal file growth prospects.

This concludes our prepared remarks for today.

Operator, we're ready to take questions.

[laughter].

Ladies and gentlemen, we'll now begin the question and answer session.

We should ask question. Please press star one on your telephone and wait for him to Vietnam.

If you wish to cancelled or you quest.

Spreads.

Please note there would be a short pause asked the question sorry.

We thank you for your patience.

Your first question comes from the line of Sherry Jain from Citi. Please ask your question.

Well. Thank you very much management for will give me the opportunities.

Oh I have two question and the.

Regarding your transition she institutional something because just sell management mentioned that you up you do something.

Great and cooperation with no PDP financial institution.

Very stable so doesn't mean that.

Peter piece on the partners.

And if so what types of financial institutions are you looking.

And how will this.

Oh the companies take rates.

And the second question about quality, because we do see though delinquency rates fall short term loans.

Right.

So what measures its company taking to shoot.

Yourself from the rising before and how should we forecast.

Delinquency rate.

So these are the two question. Thank you.

Hey, Sherri this is Alan I'm thankful pay attention to our funding source diversification. So as you might be aware off in China, though the continues a regulatory us strength streak soon.

Not really a limits how much a P to P of funding can be a allowed in oh industry and do a very obvious the progress of the company is up most of our lending solutions all funded by a non peer to peer platforms and mostly by up a licensed.

Lending institutions in the sort of quarter actually this trend will continue to improve.

As you already see in a new origination of the platform a majority of the loans self funded by different type of financial institutions.

And this trend will continue to first of all to diversify the company funding capabilities, which will decrease the risks off dependency P to P and even the dependency on any type of a particular funny institutions going forward on the second of all as we are reaching more.

A large financial institution too.

Ah to do is funding and our take rates will be able to improve across the time, but take rate is a relatively complicated question 'cause. It's also the functional off Oh funding costs operating cost and also your your risks, but say, particularly at about the funding cost the I think.

Okay, how were going to see a trend off improvements on the road.

In terms of your question off the asset quality as you can see oh, well going through a tunnel off a industry and a macro environment adjustment.

So to be conservative in this environment and.

To be a proactive in terms of improving the structure of the portfolio other than a increase the size of the portfolio. Our total outstanding loans has actually.

Decreased.

A little bit fun earlier corridor so.

So a along the trend the denominator decreases so little bit so.

It's quite nature natural even though the vintage law so far on why assets stays stable in our short term short term delinquency rates can increase a little bit. So so far I think the increase is still a controllable and there if you're looking at Oh, the transitioning off I'm not sure.

What I'm doing because he into long term delinquency. The number is still a very stable and if so if you're looking at to our vintage up a map off different asset class out working with I would see some of the asset classes I actually at a improving its risks.

As expected. So we have for coffee then solved continue to maintain a very high quality all far ondine quite assets.

[noise].

Once again, if you wish to ask question. Please press Star Wars, or your telephone and wait for names.

Once again, if you wish to ask the question.

Please press star one on your child, so and wait for any him to be announced.

Well I.

Again, ladies and gentlemen, if you wish to ask the question. Please press star one on your telephone keypad.

There are no further questions at this moment and I will hand back to the management for closing remarks.

Thank you very much a everybody for participating our earning call.

Have a good night.

In China.

Thank you everyone Bye bye.

Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may all disconnects.