Q4 2019 Earnings Call

Thursday

Thursday Thursday hello and welcome to Jim who technology ranks fourth quarter and fiscal year 2019 earnings conference call today's conference call is being recorded at this time. I'd like to turn the conference over to letting you jump his investor relations, please go ahead.

Thank you operator. Please note the discussion today will contain forward-looking statements relating to Future performance of the company this statements within the meaning of the zip 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 nations in today's press release and in this discussion with no discussion of the risk factors that could affect tempos business and financial results is included in certain filings of the company with the Securities and Exchange Commission off. The company does not undertake any obligation to update these forward-looking information except as required by law here in today's car management will also discuss certain non-gaap Financial.

Measures for comparison purposes only for definition of non-gaap financial measures and Reconciliation of to non-gaap financial results. Please see our first quarter and fiscal year 2018 earnings press release issued earlier today. We're buying services and also post states in the investor relations section of our website as a reminder conference is being recorded live and archived webcast of this conference call will be available on June fools website. And I under GM food. May I join us today on the call from Joe Senior Management. I missed the David. Yes, co-founder chairman and chief executive officer and missed off kitchen Chief Financial Officer. I will now turn the call over to mister. Yes who will provide an overview of the company as well as performance highlights of the first culture and the fiscal year 2019. Mr. Chen will then provide details on the company's name.

actual results and business of

Look before opening the car. So your question you say yes, please go ahead.

Hello everyone and thank you for joining us for our call today. We continue to enhance our vision and execute of our findings strategy in Michigan, which is to become everyone's Financial partner. We are operating in a rapidly evolving environment that brings both significantly challenge as well as new opportunities interview, though leading proprietary Technologies are the Deep ecosystem. We are uniquely suited to capitalize or new development firm believer. Sorry that value to our customers and other stakeholders is not have like to start outlining the backyard of the operating environment off in the fourth quarter and full-year 2019 last year. We are early on it was going to be challenging year and the vehicle activity log.

Made significant changes in order to reposition our company Target to achieve the balance between growth and efficiency the challenges but not running from a general macroeconomic perspective which began more uncertain but also due to the rollout of a new set of rules and regulations off his new rules and regulations were designed to address the important role of syntax in supporting economic growth while at the same time safeguarding users. I'm I'm do Financial Risk and the protecting them for a new threats such as consumer privacy and security.

Did you know the nature of our business model is one that is highly scalable and allows us to be nimble on a very light model the low-risk fundamentals. We took several preemptive measures to not only prepare our business to face the same challenges, but if you continue differentiating ourselves in the marketplace and the better position and prepare ourselves for growth

Let me online steps. We took the 2019 and the will continue to deploy in 2020. Number one digital transformation wage resolved industry expertise proprietary technology the Deep data inside as well as experienced team. We are well-positioned to a club right opportunities in the digital Financial Services Market, our data science modeling capability artificial intelligence and power provided digitalized Solutions customized for varying specific needs and available or empowering Banks and the other license to financial service providers office technology particularly during the outbreak of the coronavirus. We heard more from our banking Partners who wants to a club

the implementation

Digital strategy a customer's online on the remote remember to take reservation and amuse initiatives to drive growth. For example, we are pleased to announce that we have successfully secured off by chance for insurance card, which will pay the way for us to expand Financial coverage you reach corporate offering off trying to provide more financial choices through our users Financial life cycle. This is exciting you new area for us and we look forward to updating one of these progress in the coming quarters.

Number three operating efficiency enhancement and cost optimization study the front Q3 2019 the event up our cost-cutting teams in order to drive operational efficiencies in our business. Specifically, we made progress with respect to marketing efficiency Improvement in productivity enhancement.

Well, it changes the 2019 continued to tightening the overall credit environment Regulators have been working to establish a comprehensive and it's a standard life and faith across the sensitive financial service providers including online Windows proactively reduce the loan origination warnings beginning in the second half of June 19th. We expect that clarify the regulations you need to have finance and the teacher lending sector will help viewed an operating framework, which will increase consumer confidence in the financial stability.

In 2019 is our core strength and fundamentals intact, but I have the leading organization capable of going off the growth opportunity with the mentally stable and robust position. Although we had our share of challenges also personally and financially in 2019. We find a way to thrive and differentiate ourselves for other companies are the carried more risks one of our financial highlights include March and turn around at 7 patent point five seven percentage points as a result of of our efforts to improve efficiency and the approximate cost of maintaining a strong balance sheet to provide ample resources to support our business.

Well the opposite.

Additionally crediting call me call me into the economy and the financial Market. We should be able to scale more quickly because of the strength and the network effect of them benefit from a free market can in the future.

He started across the board of a credit card recommendation business continues to gain market share Revenue increase 65% sequential airbags to our credit card business Network bringing the phone number of tanks in the network, 2:30 and end addition to continuous efforts made to extend our number of Bank Partners. We also offer a collaborative relationship existing banks in the network, the initiative include product extension from credit cards wealth management page deposit products and a deeper Corporation through our users life cycle by leveraging of a cutting-edge Technologies and operational expertise with banks.

Taking their focus on the Consumer Finance industry, even your area of digitalization search Corporation. We are enable Banks to improve the risk management page technological capabilities as well as bring a small monetization opportunities and a few of few of our future growth.

Do you have next to speak about the Kobe situation and its impact operations as a boss knows just break of coronavirus in January 6th, certainly motion a series of ongoing development not have caused and are causing disruption and the personal suffering our hearts go out to all those on the front line fighting over the nineteen and who had impacted.

Number one priority has always been the health and the safety of our employees and we took a decision. We took decisive actions early warmed you tested the working remotely before the Chinese New Year last January and the enforced remote working environment month on February.

Yeah, making an adjustment to minimize the impact of covered maintaining Potomac under at least to report that as of last week off 90% of all the employees have returned to work either remotely or on-site. Do you have roughly about 20% returning physically I had to call the office to maintain continuity in serving of a user's customers Partners am looking forward our business activity as much as possible.

your continued

To closely monitor the situation and the make adjustments accordingly.

That we are part of the site as the corporate Citizen and have source and donated medical protective gear Maps through our network box. Trying to let's see.

Well acknowledging severity of current macroeconomic conditions, we believe the negative impact Global consumption and S any activities will be contained and the relatively short debate and economic activities will really bombed as soon as greater level of containment. I realized we are encouraged by the central bank's effort to inject more liquidity into the economy through our portfolio of monetary to increase the interest rate reductions by the increase the credit facilities available to Ebony's and consumers as well as other government initiatives. We expect they'll let me take a second of the coded 19th and demek to have an impact to our business under that this impact will be relatively short-lived as we

I'm seeing encouraging signs of early recovery in China.

In conclusion 20/20 is a challenge in stock after the outbreak of coronavirus. Our business is actually suspended for over 2 months. The financial service providers cost closed and the people quarantine themselves at home until now we see you have limited access to a taking care of our users customers partners and our business has been impacted and it will take time take some time to make a full recovery.

As of last week to around 60% of the weekly average in the fourth quarter, which I traded a healthy and stable train of recovery.

In addition to call with nineteen. We are monitored other factors, which may impact our business including the evolving situation and last year's regulatory change.

On consumption and they're supposed to grow the economy being a smoker also opportunities in the future off the screen from the regulatory framework in place to support healthy and sustainable growth in the digital Financial Services Market was the foreseeable future but we are optimistic about our long-term growth process. We actively Embrace these changes and have strong confidence, you know fundamentals with our team or take knowledge as well as our business model, which is the insurance to be more scalable and the care is less risk allowing us to be more prepared and the better positioned for full recovery and the new growth opportunities in the future.

Is that a not turn the call over to our vehicle?

I've got you in for discuss our financial results.

Thank you, everyone.

All four quarters hundred nineteen performance demonstrated the results of our continuing efforts to optimize business and improve operating efficiencies in a size up tightening credit across the board. The number of credit card issued our platform through all channels hit seven million for the full-year a market share game. So the demonstrating all the strong competitive strength in the market the proactive cost optimization measures. We introduced in the third quarter beginning to take home in this quarter sales and marketing expenses as a percentage of total revenue decreased by 11%. Points compared with the third quarter the impact from optimization program regarding productivity. Perhaps also started to kick in in this quarter such measures consequently contribute to a non-gaap adjustment model in sequential improve.

Over a seven percentage points. We are pleased with the results of our optimization efforts which cancel it off to the ongoing ability of our Platforms in the midst of operating environment and challenging micro-economy conditions.

At the same time we continue to deliver our strategy to balance growth and efficiencies and the cost and expense is include certain upfront investment off on your growth in new new business initiatives the expenses incurred in this area who are around and be twenty six million in the fourth quarter and walk around on the 61 million for the full year the mandolin strongly believe that this investment will fuel our future growth and create shareholder value in the long run.

For the first quarter, we recorded total revenue of approximately $290 million two hundred and ninety million exceeding the high end of our guidance by over 10%. I just didn't a loss narrowed by around 32% to approximately $59 million from a loss of life of 101 million and the in the previous Court total revenues for the first quarter of 2019 decreased by 61% year-over-year and temperature recording fairly reflects the credit tightening across the board and the impact of evolving industry Dynamics which lead to the decrease of number of financial products available on our platform in addition the company proactively scaled-back certain advertising business given the lower efficiency wage.

I miss the

challenging micro economic environment

Lost Mountain remain stable at 90.8% in the first quarter compared with 91.7% in the third quarter of 2019 and early ninety 90.9% in the same period of 2018 along with certain cost optimization initiatives to improve our building efficiency and productivity launched in the third quarter 2019. The total operating expenses in long-term measure, seeing a declining Trends sales and marketing expenses decreased by 51% off. So I am the 259 million year-over-year and the expenses decreased by 41% to R&B 48 48 million GNA. I was I'm the 25 million some cost-cutting measures have may have leg effect, which is expected to continue the benefits of appreciating twenty twenty years.

As a result in a loss which it proved share-based compensation was $69 was R&B $69 million in the fourth quarter at the same time ma'am. But if it was a loss of R&B 63 million

As of December thirty first nineteen twenty twenty nineteen, we maintain the strong balance sheet with cash and equivalents liquidity of R&B 1005 59 million and working capital of approximately R&B 947 and now on to our outlook for the first quarter as we mentioned we have ample resources to successfully run and grow a business for the long-term.

However, the first quarter is going to be a challenging quarter due to the outbreak of coronavirus, but it would believe the situation has started to recover off the first quarter. We expected our business to be impacted by the outbreak of coronavirus as well as seasonality in spite of huge uncertainties. We have we have woke up some order indicators of recovery based on current estimates. We expect total revenue for the first quarter of 2020 to be in the range of approximately 830 to 140 million We Believe opportunities go alongside the challenges and the impact from the Kobe banking outbreak of short-term in nature and remain optimistic about the robust long-term percent of our grown.

With that. I will conclude our prepared remarks. We will now open the call to questions operator, please go please kindly go ahead. Yes. Yes. Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 and your touch tone phone. If you're using speakerphone, please pick up your handset before pressing the keys off your question, please press * then two at this time. We will pause momentarily to a some of the roster.

And the first question comes from John car with Morgan Stanley.

Hi, I'm leaving in management. Thank you for taking my pleasure. And so I have three questions. The first one is on the recovery Trend that we have seen. So I thought maybe the management can share more part of this on the breakdown of the recovery in terms of the loan applications and quite a car recommendations and advertising. Just wanted to see the segment returned. And also we mentioned the last release roughly about 60% of the normal term volume so long hold on just a tape for us to maybe expect eighty to one hundred percent recovery, maybe in the second quarter or maybe later just on some kind of Zone on the potential recovery to life. So the second question I say it's about the new initiative. I think particularly on depending on our cooperation with the club.

Connors but then is to point. The first one is free mention about Rising demand for our funding partner to accelerate digital transformation. Just wonder how long you stay any more details on that. What type of the corporations are they looking forward to with us and also is about the competition of these Corporation. Do we see what what is the competitive landscape as in there are plenty maybe take dry and so I'm trying to work with the buttons on on on the digital transformation. So so the the the final question is is on costs just wonder how much wage um, um room for us to optimize the calls going forward. Thank you very much.

Okay. Thank you John. Let me take you I think let me let me take you first and second questions regarding the recovery Trent and off the cost of the saving cost optimization initiatives.

So firstly about the recovery Trend by category as we mentioned, so let me expand. Let me first explain the impact in the first quarter. Normally we say seasonality, you know among the seasonality. Normally we will we will have you know, two to three weeks because of the Chinese New Year, but for this first quarter we are you know, because of the outbreak of the coronavirus such kind of you know period of time in which all business was partially offended has been extended more than double or cold too cold to Triple. That's how you know, we we we set the expectation of our first quarter first quarter, you know guidance in the sense of you know recovery.

And by category now, I think you know.

The overall the weekly bottom is around 60% Benchmark Benchmark to the weekly average in the fourth quarter 2019.

So we are a category. I think you know, the credit card is ahead of the you know ahead of the average volume recovery page long as it's it's a bit behind behind but not that much. I think the overall range will be seeing, you know fifty to seventy percent by category am actively so yeah regarding the second half of the question about when we expect to recover to the 80% off eighty to one hundred percent. I think you know, you know, we we are optimistic optimistic about the recovery in the long run off for the we are hard to expand and it is it's a bit early to expect this and you know estimate at the current stage what I can say is

That's in the first quarter the lowest weekly we are seeing you know, the the bottom overall the overall wage is around, you know, Thirty forty percent of the of the normal now, we are we climb back to 60 around 6,000 fans and we continue to see week-over-week recovery for now. The 60% is as of the latest week data we observed.

So I think probably you know, we can be you know, we we we can have a full so-called full recovery into the second quarter, but it depends on you know, how the how we recover from the you know, nineteen outbreak. So probably there will be some something code to the April and I'll be all of my end. It's something you know, we cannot control bulb. I hope this is your month prepared. I will take the logical solution to keep in mind that we just studied the folks just started returning back to the office met last Monday. We don't even wage.

Yes, 60% forewarning productivity, right? But there are other factors beyond our control example, the Beijing House like productivity. So right now we have one in fifty percent of the people can go to the office right off and also our promise Financial, I actually based pretty much like over the country in the city have different rules in terms of companies or institutions can completely go back to work. So we do rely on the schedule or timing of our partners. So and I talked to you a week off.

Speaking of productivity of this morning like rough can understand that two or three weeks. We will be fixed.

Trying to continue. However, however, I mean given the large Global macro situation. We we still do you still believe neither or late middle or late? They can color on June would be a realistic time line and we will be put as I'm today, but of course the situation change almost weekly if not daily basis. We don't keep more than that. So we are putting some conservative approach in terms of wage going back to work.

Yeah. Yep, uh-huh. Yeah to the question about the cost ignition is initiatives and you know any other any further room for us to improve the efficiency, you know first, I think you know, our initiatives to him is in is in both in both ways to improve the efficiency and and at the same time to cover the costs. So from the efficiency perspective, so we folks we focus on the, you know, the efficiencies of money on marketing dollar spent. So we are seeing a clear Trend in the first quarter. We you know improved our we improved our Ally birth.

Of the sales and marketing although, you know, we you know, we in terms of top-line. It's It's a still, you know, sequential life somewhat strained but we manage our business better and improve the sales and marketing efficiencies. So we will keep doing that. I'm not seeing that so for twenty twenty, I think we still have the room to improve the sales and marketing sales and marketing efficiencies throughout the year. But again, I, you know, it depends on you know, when the business is fully recovered and we have the we can't have the scale back. So now our Target is to you know, uh edge of the sales and marketing agencies back to the back to the level of 2018. That's that's around 130 our way we achieved for the uniforms.

2018 we will we we talking to achieve, you know around that and also in terms of the you know, cost-cutting particularly month. We do some optimization in terms of to improve our productive productive productivity per head. So in the lounge from the third quarter to 4 for the last year, you know, we we have we we cut off head come by around 20% plus but at the same time we encourage some unplug one compensation for such kind of you know cost-cutting so there will be some lagging effects which will benefit all creation seeing plenty of times so and and and and we also have some more initiative including, you know, optimize the usage of server and bandwidth charges.

our office space

Office space according to our you know new account and a new plant and that's where all you know benefits, you know benefit to the cost structure for 2020.

Yeah, I think that's your question first and and answer the question for the for the new business initiative Davis. Do you want to come down this person? I believe you are speaking. The question is about initiatives. I'm not no more specifically about type of partnership and took the picture and let me let me lay out our our our plan for for for for new initiative. I mean, I've been working in the last couple of quarters. I mean we look at it the the opportunities and new initiatives include Dimensions. The first one is is expand into new verticals and a new phone need your product. You want to reach our user or consumer and the estimates Financial wise. You may have a title loan before they also able to consider the insurance.

Put a call maybe recorded or not expand the new Financial body comes the 2nd Dimension will be also offer like that image Mark. We had some we're doing lots of cats in South Asia India and Hong Kong we have teams on the ground in the last few quarters. They're making good progress off. Of course. I need to set up a license. What can be the local Regulators. Are you sure, you know other people will also be impacted by the corona valuable situation. So those markets covering before the virus spreading curved.

Right, it's coming. So we will see that slowed down as well the third dimension. We we actually be working with the financial information to the digital transformation. So we actually in the past we don't always being a promise to enable financial institutions to wage increases their digital marketing capabilities this management leveraging a big data and the model in to to to to to build and infants the owner and Chef decisions. So we are we have we have been very proactive and we are prepared for this and recently the the coronavirus situation actually offer a full financial institutions to to serve the customer and approve the loan and taking care of the customer online. So so so dead.

You say digital.

Blinking or digital ending was nice to have before the phone available situation 13th of this year. His quarters is going it's going to be a necessity for banks. I want to get a few example. I have a few examples of what type of Partners we have. We have one of the big fights Chinese Banks. We were the credit card pack generating credit card approval before now the study the working with us to to help to build the risk model for their for the for the non-secure the same credit portfolios. That's the one of the top five bank and we also have a joint joint least bank. That's one of the Top Spin Bank in China. I did build the Black Elementary fishing and approval engine in the past. It didn't work well on doing this current situation now, they need to make almost dead.

Leaving 60 seconds. They were not able to do that before so behind the scenes is the data data collection, like like screaming like a Half Men and digital Marketing Solutions. So we were part of we actually going to be competitive bid on a recorder beautiful before 2019. Yeah. This is a quarter of your 30-day Implement in this type of initiative and the smaller Banks. We have smaller commercial Vans. This is a rule of Commercial Bank in New Jersey and Providence. They they're challenged in to build the end-to-end online wage. Nobody capabilities from the end-to-end. It's it's it's it's a relatively big Google Commercial Bank. It's not like National to Regional birth.

They need more help. Looks like we need more help compared to a Big Five bank or even larger to join your own bank. So so that type of a customer Partners maybe institutions, I need to say, you know, I would say working with over 2000 financial institutions in China. You do expect it the digital transformation project across the board in terms of type of financial institution geographical coverage and the type of wage. So that's that's that's the market space in the Constitution. I would say the market don't know Mom digital transformation online decision software at the service solution analytical solution in China is still in the early stages.

You do see a lot of pao's there may be a nice player focus on data or modeling or or based off.

Just provide Solutions and also the emails focusing on just a few times but our strength as the largest office building more financial institutions. The other single-payer. No one we have been working with friends for five six. Seven eight years, right? We may have you speak with one of the Credit Sesame loan right very good to expand our storage box 2 different units deep in the group within the same financial institutions. We may launch our lead generation or digital marketing service a few years ago know the extension that will index more your Technique technological driven or data-driven decision based service, so that that's that's the wage.

No.

That answer your question.

Yeah. Yeah, it's a very helpful. Thank you. Thank you. And once again, please press the star and then one if you would like to ask a question about the next question comes from giulio with the UBS.

Yeah, hi. Good morning. David and Oscar. Thank you for taking my questions. I have three questions first from your observation. What kind of financial service providers office mostly Heat by cover the nineteen and the list here in February and how about the recovery rate free versus free Chinese New Year holiday or versus January of for this financial service providers and the second question is on the cost side. Did you get any City or cut in fixed costs such as ranging from landlord or delay in Social contribution payment. Just want to get a sense of how how much cost you could see from from this perspective. And the third question is a follow-up question you initiative. When do you expect to contribute meaningful revenue from this initiative?

Okay. Thank you Jodi. Let me answer. Yeah part of the question. So I think you know regarding the what your first question what what type of financial service providers most impacted in the most impacted in the virus outbreak, you know from from view, you know, it's it's a volume decrease, you know across the board from the you know, as we observe in the in the coronavirus outbreak, but David mentioned so for the financial problems with some ways the person online capabilities so they can still reach out to the consumers and provide services and do the job.

position and online positioning

You know, although the volume also decreased but they can still serve their customers. I think the volume decrease is, you know, I think mainly driven by, you know, less activities during the Chinese New Year and then the outbreak of the coronal hours and also, you know, probably you know, the the the trend of rising did you say make the financial service providers further tighten for the Titan their credit policy but for the financial service providers that hose capacity is most offline. I think they will be they will be more impacted during the Corona virus outbreak because you know because of the, you know, people currently being you know, people cannot be people in person. So the the service probably dead

Cannot be delivered in person this this kind of financial suicide as maybe you know more impacted during the colonel virus outbreak Thursday. Yeah, I think this is this is to first question yourself freaking question about the cost of saving, you know, you talked about the rental and they talking about the long delay of the you know, Social Security fund payment something. So we you know for the rental, so we already took I just did office space. So the rental impact will you know, I think we will have to we will have the rental bandwidth benefit from the you know office space cut in 2020, but that's the rental car is is a very small percentage in terms of the total cost and expenses birth.

For the delay of the you know, Social Security fund or other charges by the government. Yeah, we we we acknowledge the quality of published by the local government like in Beijing and in some other cities, our our department is exploring this with the local, you know off the local. Let's say the labor the Labor Bureau or some other, you know, authorities wage charge of this. So we we we have to have you know qualify the the overall cost, you know cost of living in this regards as long as long as we have the clear picture we can refer back.

I think for the yeah, the question is about the new initiatives home. You know, we we are pleased to say, you know for the for the new initiatives of geographic extension and also category extension as we mentioned before, you know, all these you know, new initiative has had generated, you know revenues in the post-cold the last year but you know, I'm not significance and now, you know our new business an existing business, you know impacted by the Corona virus outbreak. So I think when we went to the DMV in the coming quarters, when we have we have something significant we can share with we can share with you and also the Dead

Maybe I'm not sure whether you have anything to add.

Yeah, you pretty much what type of financial institution with you, faster depending on the type of financial products like for the products Financial products. You need need to be face-to-face like a mortgage in face-to-face. Of course that's going to be slow recovery across the board and that's pretty much into regulatory kind of requirement. Am I supposed to fix and you do have seen like the credit happens be covered in a few weeks back the keep in mind and most of the the majority of the country and you still partially right? I mean what partially back to work right? Let me see even like Beijing and Shanghai even send your current job.

What is the different shapes so we do find some nice recovery from one of the digital reading capable of a powerful Banks who have invested not even a few they're able to launch their masks a credit portfolio Factor right that you probably used. I saw online that you could get more calls you offer your own, you know, however, if you're able to quickly identify consumers online because people are still online. We don't take phone calls don't go to the fridge, right you're able to serve them approved and according to Google Finance your car and then then then you you are actually the the leaders. So that's why the lockdown situation push and the force Information Solutions to go digital Go Mobile Data driven go wrong and decision so that not to look at Birth.

Behind some banks have been talking about a digital transformation, but I haven't done it yet now.

All right. Thank you and answer are no more questions at the present time. I would like to return the for the management for any closing comments.

No more questions. Okay. Thank you once again for your for joining us today. If you have any further questions, please contact us page at 3036 take reservations. Thank you for your attention, and we hope you have a wonderful day. Thank you. Today's presentation made out of connect your lines.

Thank you. Thank you. Thank you.