Q4 2019 Earnings Call

Ladies and gentlemen, today's conference is scheduled to begin shortly leased continue to standby. Thank you for your patience.

Ladies and gentlemen did these constraints are scheduled to begin shortly lease continue to stand I. Thank you for your patience.

[music].

They will be a question and answer session. So I asked a question. During this session you will need to five star one your telephone please be advised to the Beast conference is being recorded I didn't know like data conference over to your first speaker today mislead Yeah. You think you. Please go ahead.

Thank you and welcome to your in digital work fourth quarter and full year between 19 earnings Conference call. Today's call features that presentation by the founder Chairman and CEO off pretty easy and C. O off your dish the funding.

I missed the drumbeat CFO of.

Mr., Michael GE Si are off your digital.

What beginning we would like to remind you that discussions during this call contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act 1995, such statements are subject to risks uncertainties doctors that can cause actual results could differ materially from those containers any such statements.

Further information regarding potential risks uncertainties. Our factory. It's included in that he'll Sally U.S. Securities and Exchange Commission.

Your digital does not undertake any obligation to update any forward looking statements, except as required under applicable law.

I'm going to call, we will be referring to several non-GAAP financial measures and supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or such substitute.

Financial information prepared and presented in accordance to U.S. GAAP.

As I mentioned about these non-GAAP measures and reconciliations to GAAP measures. Please refer to <unk> earnings press release, I wouldn't I'll pass it onto I see opening for opening remarks.

Thank you all slipped picking the time to during our fourth quarter and full year 2009, <unk> results conference call it could it.

First I'd like to send my greetings to dose you Hans and all around the world as we're going through this difficult time.

We we put the families that have been affected by it and we still do those who have been.

Asked do on the front lines fighting against the outbreak.

I said nation in my letter to our colleagues.

All of US play an important part in fighting this outbreak.

And we expect the situation in China to stabilize soon.

We are on track sport business recovery.

During the outbreak we've made conscious efforts to support our borrowers in the hobby affected areas by loosening their repayment terms.

No to our business update.

Even though to the other night team has been a challenging year for the industry with rapid they bobby market conditions and tied to new regulatory environment.

I have made significant progress in our strategic transformation to reposition our business as we enter twentytwenty.

First we have completed the accretion no integration Oh, you didn't die, it's pretty easy inclusive, but as an online wealth management business to for you and digital the de being spin torque platform, providing full spectrum upgraded products to consumers.

And I said allocation based the wealth management services to mass affluent clients in China.

Second we made good progress in expanding our credit tax business model into loan facilitation as well as license the lending appreciate model.

Lastly, our online wealth management business has built a strong foundation and the polls what's significant role in the years to comp with strong momentum.

For the full year up 2019, we have achieved RMB 8.6 baby not revenue RMB 1.2 billion that profit and Ontario ended the year based on B 3.6 freely usable cash.

Which puts us on the solid seeking to weather near term market volatilities and capture market opportunities as business activities recover.

Well our party talked business, we are building out new products services, and expanding customer acquisition channels to better reach and serve our borrowers.

We launched a new my could probably <unk> product in November.

29 team with smaller loan side and the short term.

Which is a preferred assets.

You should know bank partners.

Talk about that in Twentytwenty, we plan to roll out a revolving line of credit products.

To better meet our borrowers everyday financing meat.

To fully leveraged our nation wide service that were coverage will be rolling out auto loans targeted at 700 cars, which typically have a better risk profile than unsecured consumer loans.

Customer acquisition from.

We're looking to partner with large traffic channels like Shelby and work together to add for consumer parties services to their user base.

The point of consumption.

Next to wealth management.

Well I see our non P to P wealth management business, gaining strong traction.

In the fourth quarter of.

18, 19, I sat and advisory for non P to P products.

64% quarter over quarter and the sales volume.

Hundred 32% quarter over quarter.

In particular are you a bank structured deposit products exceeded RMB 600 meeting in November 2019.

A number of current you invested you Busters you investing in non P to P products increased to 21 folded as of December 31st up 29 team from 15000 I want.

To better serve our customers we partner with one cannot.

And have Onboarded selection up on that product on our platform.

In August 29 team, we launched a team of 50 online financial advisors to provide one on one wealth management consulting services.

<unk> view in masters diversified allocation need.

As of December 31st the 2019, the number of investors that have you, but did you more than one type of asset class.

Increased over 60% from September 2019.

Well mutual funds total asset and advisory of mutual fund has increased it to RMB 287 median as of December 31st at 29 team RMB 222 meeting in previous quarter.

And the where I've seen a steady increase in average you a pretty even faster.

RMB 23000 in June 2019 to RMB 30000 in December 2019.

Insurance G.M.B. up your insurance products increased at six times quarter over quarter, and we expect to see a further increasing demand for insurance products posted the crawling up wireless outbreak.

In Twentytwenty, we expect to maintain a strong well momentum for our wealth management business.

As we continue to roll out more non P to P products and services, including bomb fun and savings safe the insurance <unk>.

<unk> walking with leading partners.

Recently, we have entered into a strategic cooperation agreement is principal global investors a subsidiary of principal financial group, a global investment management, either offering as a management retirement services that ensures solutions to institutional clients.

Businesses and individuals.

The partnership will open up a comprehensive strategic business deployment in China's retirement financial services market.

Helping China's mass affluent population, but to prepare for retirement.

In addition in Q4 2019, we obtained a Hong Kong stopped brokerage license and our stopped treating App was officially launched in December 2019.

We plan to roll out stock trading and consulting services in two to Twentytwenty.

Today, we also announced changes in our management team.

The Michael G well, that's still true chief risk officer up the company.

Michael brings over 18 years of experience is in risk management and usage inside this multi quote top financial organizations, including Sweetie.

Hey, P. Morgan Chase at Leap Boston back.

So don't watch will be assuming the position of Chief Technology Officer up the company.

Our two.

Don't show called multiple Peck relate to the senior management goals by the Sunni Microsoft Cisco.

In light of new regulatory guidelines, what P to P companies.

In Twentytwenty would be transitioning and there are different.

Your opinion state.

First we will increasingly use our existing nationwide online micro lending license will that.

Well, so considering applying for new financial licenses.

Second we will continue to expand our partnerships with licensed the financial institutions took diversified funding sources.

We have made strong progress skin onboarding institutional funding this quarter, but RMB 40 billion line of credit secured and expect to whether incurred significant they didn't twentytwenty as we continue to expand our funding partners beyond commercial banks to try and license.

Consumer finance companies.

Third we are looking to make strategic investments in consumer finance company as wise potentially commercial bank.

Were also applying for local financial guarantee you like.

Sure that our business will be 40 license and comply.

Lastly, I will like to talk about how the Cornell virus.

Accidents.

Over the past the two month, we have proactive big control that long ball as well as we've started to see volatilities in TV.

Largely impacted the bio slow economy as well as these lapses workforce.

Is that you, especially with our call center being phased in <unk>.

As the first week of March 81% about offline workforce has returned to work and 85% of I'll call Center I'd be turned to walk.

And of which 65% are working from home due to ongoing traffic control.

We expect business to gradually recover starting in April.

And we'll be prepared to run our business and expect that strong second half twentytwenty.

No I'd like to turn over the call to ourselves so don't be who will discuss financial results for the quarter.

Oh thanks.

Hello, everyone.

Yep.

The dealer another solid quarter with healthy market.

We are moving towards a more diversified and even some models and are challenging operating environment.

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Total revenue for the quarter wasn't.

2.4, beating up 15% from previous quarter.

Net profit for the quarter.

<unk> for hungry for me.

From.

220 <unk> meeting.

This quarter.

Does that 77% Queens.

On the credit people inside.

The wall and office.

Nations for the quarter with them.

With about 16.5% loan volume come from.

Customers actually prioritize all the pieces to new customers with better credit quality.

Wealth management asphalt <unk> 2019.

Uh huh.

Prosigna <unk> 0.2, leading west of the cumulative.

And close to 250000 westerns.

Wesman Oh platform I stopped December 31st 2019.

The total 84 million.

<unk> reached.

35.3.

I saw that December 31st 2009.

I read a master remained stable and then B 143000.

What is a noticeable is that we have seen a rocket school.

Total Oh no.

Products.

Weve a month junk <unk> 2.5 Fibe TV.

Quarter from.

So I lose some amazing.

Quarter.

Sure and 233%.

Girls quarter on quarter.

In addition.

I will not seem to be product.

One thing in this quarter as compared to.

Six why do you think meetings in the prior quarter.

[noise] bank, while managing the pilots and the mutual funds.

Among the most popular no people.

On the platform.

With a <unk> of those two product categories, increasing 131%, that's 20%, respectively as compared with last quarter.

We're also seeing increasing do you mind insurance with a total insurance premiums increased by 87% since the fourth quarter.

For our financial update I.

I will focus on key items.

This operation and the financial performance.

And you can refer to the detail the financial results.

Earnings release.

But not remedy okay great.

To that of 22.2% during the quarter.

From previous quarter.

Strong wealth.

Lending product mix on the higher loan facilitation shoes, I sell a borrowers have gotten active early repayment.

Along so for comp.

Increased to again be 588 million.

Equivalent to a 7.4%.

As we adjust our credit loss assumptions to reflect a challenging kinda dynamic market environment.

This along so was the maybe 345 million last quarter.

Driven to 3.3% off from the wallet.

Well this quarter.

And you can service fee remained stable, how they're going be a 490 million.

By the decline.

All the commission.

Due to our last or service revenue.

You are you placed in nature.

Meanwhile, we maintained our contributions of the credit assurance program.

10% this quarter <unk>.

<unk> adequate coverage.

Our quality assurance fun.

Adequately funded.

Total bombing Covenant trophy, 0.9% total performing loans copper to buy the private.

That's a program.

Oh, the balance sheet side I saw that December 31st since 2019.

Our cash cash equivalents.

3.2 billion.

Increased over 21.5% quarter on quarter.

Our usable cash.

At a healthy level.

<unk> point 6 billion.

20%, <unk> grace compared with last quarter.

Our cash position improvement was a result, <unk> effective cash flow management and the reason business operation.

It's also worth mashing adopt.

What contingent consideration liability has refused to zero.

As a crowded <unk> has a great when all can be made in cash payments related to our business realignment transaction.

The total amount overcome teams inconsiderate recently was getting them be 1.2 billion.

With that I will now I'll pass it on to Michael all the new C O <unk> updates on credit risk.

That's true.

Hello, everyone.

For quite a pro formas and risk management.

Early delinquencies have increased biofuel percentage points in the fourth quarter.

Due to a tightening collection practices.

And when I say and elimination Colonel data usage.

Looking at our I'm Replas raise five vintages.

We are happy to see an improving trend from Q4 2017 to Q4 2018.

Moving our efforts in Medicare risk.

Yeah.

Well World record performance in Q4 with leasing our expected the renders.

We have been more folks you know sort of being higher called it the costumers.

This strategy as well.

18 19.

The newly originated loans.

Hi, Yes, hi, Rick ways.

<unk>.

The increased from 38% in 20, 18% to 48% in 20 months here.

Well the loan you had lower rent ways, one to five jumped from 40%.

28%.

During the same period.

In Q1 Twentytwenty.

The result of the current <unk> virus outbreak.

We observed.

Volatilities you'd delinquencies.

Improve our overall risk performance on the mitigate the impact of current outbreak.

We have been actively president <unk> policy and the modifying our product portfolio, we reduced risk exposure.

On a continual books, you know certainly higher quality borrowers.

The latest beta.

Jacket that of the delinquencies have been coming down in recent weeks.

Pretty possibly.

So you know very encouraging trend.

Please let us back.

The impact from the current a virus would rather be salt term.

The prolonged.

Given the seasonal Isa, it's still evolving globally, we will continue monitoring closely on the managing the risk prudently.

I feel comfortable to my prepared remarks here and the people to do the operator operator. Please continue.

Ladies and gentlemen, seeking the question answer session. If you wish to lots of questions. Please press star one in your telephone and meets the needs.

If you wish to cancel class C spread stepped down <unk>.

Your first question comes from the line.

John <unk> lease at your question.

Hi, good modem instrument thinking for taking my questions.

I have three questions. So the first one and so on the take rate in the fourth quarter.

It's a very [noise].

Strong keep koopman called Hong Kong and to be mentioned several patents related to emphasis there shouldn't be business and potentially some product mix changes. So just wondering if this more how does [noise] or the change and [noise].

And well south of the Hum I'll go on just take rate I'm hungry expense control for the coming.

Yes, I'm sure <unk> expenses to be a normal take rate at 22% then.

That's my first question on the second question is on the the virus in back on the first quarter. So [noise].

Just any.

Quantify risk of volatility there can be provided so hum and also but given the lower volume and then potentially higher pollution.

How should we expect a me Oh lossmaking in the first colder [laughter] and I guess my final question is on.

Reputations.

And then a thing.

Three react getting on normalized sons and then.

And just wonder what's the Oh tabuteau requirements.

We need to put into two quantities aneurysms and also.

Oh I wouldn't read you mentioned about a quite attacking the facilitation business.

And then just wonder what's the mix you know pitching on balance redundant and the facilitation Oh sorry.

Just one more question too is.

What's the piano in pick off to the contingent consideration waste. Thank you very much.

Okay, that's Dennis and a senior VP of capital markets are so maybe we will have a michael.

I'm sure.

Okay.

Risk.

To that he relate to the virus impact.

First and then we will answer the rest of question.

Okay.

Thank you Dennis.

As mentioned earlier than they did state has suggested a the impact from the current I'll address the rather be sell term.

We did see a pretty high volatility in Q1, but it's coming down pretty quickly you know are reasonably.

Meanwhile to mitigated the risk we already practically type strategies to focus on higher with borrowers as I mentioned, we continue into the stretching from 20 month.

Slots, we also a job our.

I'm in a strategy to match the risk exposure, Florida.

With that being said at this time I don't expect maker, Oh fuel burn Wendy.

Decisively in comes out the full lifecycle of the mountains compared the sometimes in pad work. There's a longtime returns I don't really a major agreed.

Okay. Thanks, Michael I regarding to take me it in Q4 as mentioned in ours handfuls remark.

Due to those product mix as well as Oh, that's true site.

Management fee to be sturdy given its.

Driven.

And of course, there's also certain adjustment due to the bars behavior in terms of early I'd be pen repayment.

So helped a bit.

Pushing the take rate upward to the 22% I think if you're looking forward.

We expect a deposit mix continued to be healthy.

Investor site service revenue content continued to be sturdy so probably.

If you were tomorrow to our business a 20% also take rate for is that reasonable number that you can use for a in terms of or be a business in our Q1 its coming to the end, we're still tightening over there.

Numbers on a given the overall environment, we are pretty prudent in terms of controlling the visit volume particular on the loan originations site.

And at the same time, we have also been very prudent and diligent in terms of over though a cost control and structures. So we're still looking at the business you know our business, even though we had a quite some fixed component in our cost.

Even some of the.

Recurring revenue stream as well as our Oxynitride rationalized cost saves and capacity, we're still looking for a reasonable quarter.

The regulation perspective, as being has mentioned we're pursuing multi hope path.

In terms of.

Extending a developing our credit business.

From the capital requirement perspective, where they have a billion I read just capital in place and.

Oh, so for various license we're comfortable in terms of the meeting the requirements.

When we apply for those.

Licenses.

From the a contingent liability cancellation it was.

A good oh or a good value for our.

Digital because the volatility and the business.

Slowdown a quite easy has oh wait the remaining cash payment for the business realignment.

And then it's a pure balanchine back there's no <unk> impact.

And just that the remaining cash payment that was competing waived hope that answers your question.

Oh, yes, thanks very much.

Once again, if you wish to whats. Your question. Please press star one of your telephone leads me to denounce.

Your next question comes from the line ANEXIO. Please ask your question.

Hi, good money, Matt Thanks for taking my question I've two questions.

First one on the take rate too. So you mentioned one of the reason Onea Kirkland's on pardon me.

You give us some more color on day, one kind of course.

Great. Thank you and related to do so you mentioned on your remark that youre going to do.

Good secondhand car Tony Penske Lou.

We expect that could become a major component.

Good news going for.

Secondly on on the alone.

Could you give up some oh look for.

Your went or something else empty and regarding the funding so given that we probably.

Uh Huh, maybe you know PDP Oh, yeah. So.

Just wondering what would be to make so something going forward and you mentioned that you're going to use more sixtyv microcredit Lyson Len I wonder what.

Maximum balance that license could support.

Our country.

Okay, and so I will answer these questions and there's other things are the management can jump in so in terms of panamax as the optimization in terms of the long duration.

And pricing great at.

Helped us concerns and part of the pricing.

And also we are moving more from the upfront fee collections to be.

For the repayment amortized.

He collection products I dunno, so helps as well and.

And also of course, the Messman site.

Revenue continued to be sturdy.

In terms of the alone and it is already renting up a we actually had initial volumes.

Starting a taking off in Q4 already and we do expect this business to becoming a meaningful portion opera business. Given that these are more secure nature knowns that usually exited a better credit performance then unsecured business.

And also during this downturn, where more mindful eye in terms of the credit Volatilities and usually.

Consumers with cars are tend to be somewhat better equipped.

For the.

Downturn repayment.

<unk> outlook perspective, I think you know as we mentioned the the virus impact which do not.

Not clear yet but from our current.

Customer demand as well as what we see from our business model, we actually expect very sharp.

[laughter] recovery.

Already starting in March, but probably a salary in April and May. So if you look at 2020.

Probably Q1 is a bit low points, but Q2 Q3 Q4, we should have a rather a steep gross acquittal quarter. However, as you. All know we are quite a business. So usually in the type of time, you want to be careful and can feel gross.

Even though the demand is pretty strong.

So we probably expect.

In Q3 timeframe, we'll probably get back to what.

Our 2019 normalized quarterly run rate, that's what we see.

The year twenties Wendy.

In terms of the funding mix.

As we mentioned we're pursuing multiple path in terms of that business model transition.

[music].

We have 40 billion.

Secured line credit facilities from our Institute and partners and we expect.

On the percentage of the new business volume that financed by a license institutional partners I should.

Well meaningfully.

In the year upwards towards 50%.

And then in terms of the micro Friday's license wordy, yes, actually we have already been utilise that and doing business.

Going forward, that's gonna be part of that business, but probably not going to be a majority of business. If you think about we have both long facilitation and also for the alone which is which is a secure nature a lot of institutions nurse are very in favor of this type of asset.

And working very good traction with so these are there some student honors. So I would say you can think about that our business going forward.

We'll have a major part a it's a long for citizens your model some part I continue.

TV financed by there's a way of.

Investors.

Investment and then of course.

When we have the microcredit license that we have and Ah. We can also leveraged that with our own capital.

See that we have a 3.6 billion.

Cash or you can quit equity.

Balance sheet that's.

Quite meaningful <unk> business.

Thank you.

Your next question comes from the line definitely <unk>.

Please ask your question.

Hi, Thanks.

So my first question is regarding sort of mentioned at the beginning that.

Have you have to loosen somebody's human times.

During this process ourself with so oh, okay, if market housing himself what types of borrowers.

Good thing.

How bad how how is that Mike.

Compared to your outstanding balance.

All right I do feel councils.

Oh.

My position for those.

And then second question is suppose to process the new Michael deposits.

More upbeat.

Long hang on to the size.

Oh that causes houses that compared to a weekend.

Oh that's.

Since you mentioned.

Struck durations small ticket size. So that's I mean, if it will.

That's helpful haven't Lois.

<unk>.

Oh, you know causes and lastly, just want to terrified that.

Just me that.

So you mentioned panel.

Definitely increase.

It's because.

Oh wait hobby affirms each.

I'm pleased to see collection.

Sending us that that's especially actually lower I give or take.

Okay. That's it.

Like conditions are just want to understand more.

So the reasons behind it.

Okay, I'll quite the some answers and yes. So in terms of Ah the some of the Uh huh.

Loosening up the terms with its more specifically to the heavily impacted area meeting.

Area, where basically.

You know not to Uh huh.

I would not what basically reducing the effort in terms of collection and also gave you a and b customers. Some longer time to continue repayment may being released some off the penalty, but Oh. These will continue to be recorded.

To our NPL and charge offs, so that's not going to impact in terms of the financial credit risk performance at the instead, the the volume within that region, it's pretty small that particular, well be region is only less than 2% or total volume. So I think overall impact.

It's pretty small so in terms of be microcredit product.

As you might a 12 month and then loan size a few thousand to about 10000 and Ah Ah the pricing I think then it's a similar and were starting this was more arc existing customers and.

That usually have already exhibit a good credit quality and we're also developing a revolving todd I'm talking over that to maximize our customers value.

For the long term.

On.

This you can think about this is that at all product to our existing topic portfolios. So we expect those two actually contribute to our business gross.

In terms of the.

Take rates given our revenue recognition I.

Actually I think the monthly fees.

Our actually giving us a decent take rate or better or the upfront actually less.

Okay.

[laughter].

Your next question comes.

Comes from the line a chance I see Sasha question.

Oh, hi, Thank you. So don't just just one more on questions because home subpoenas mentioned about a potential material impact from the accounting change on deals with your assumption <unk> I guess C.

Oh, I'm, sorry to say Oh, the current expenses for the loss Oh comes in a model. So I'm, just wondering where you see a similar Oh Oh no a potential from these outcomes and change. Thank you.

But then it's probably I'll take on this is about a U.S. GAAP accounting change.

People onboard I'm proud to computers like it is moving towards a lifetime model.

We oh.

I'll flip you about developing our risk enough financial models to to follow the rules and a detailed analysis.

Oh, I get take some time to finalize.

Overall, we wouldn't expect I'm not sure back to all count going forward.

Mainly because our current.

Like the most of the recent publications.

Uh huh, considering a good portion of the lifetime behavior nature.

So once we have up and get more powerful not well where would you definitely more detail.

First quarter ABTS. Thank you.

Thank you.

Once again, if you wish to answer your question. Please press star one of your telephone anyway team to denounce.

Again for those who would like last question. Please press star one in your telephone.

<unk>.

There's no question at this time I would now like not a conference back they said they speakers. Please continue.

Okay. Thanks, everyone that concludes our conference call.

Ladies and gentlemen that does conclude a conference for today. Thank you for participating in the old disconnect.

[music].