Q3 2020 360 DigiTech Inc Earnings Call
Ladies and gentlemen, thank you for a standing by and welcome to the Threesixty could you talk a quota share.
The 20 <unk> earnings conference call.
Please also note Stacy vaccines being the quarter.
At this time I'd like to turn the conference call a the two miss mandate on.
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I don't have the wattenberg each reporting data on record breaking read out of a key operational and financial margin, what I don't know Denise from each arm.
The 66 beat out during the quarter just for example, like a crucial basis.
Outstanding loan balance increased by 7.9 free cash.
Well I'd be 84.2, bad signed the 78 point I wonder.
Total revenue of RMB 3.7, beating a template.
10.9% of quicker non-GAAP net income was RMB, one point, you're 90 day.
36.7%.
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Beyond that would be the coronary comes on the battery channel we.
We do a great significant cash what a thinking it's true. These are beginning on yeah were coming on.
We have now successfully navigated the only three quarters on the tremendous market uncertainty on the mother of city, but the consistent execution bad.
As you probably read out the.
VP of that strong patent on to the families I like the Saturday and the spend a bankruptcy on our bakery.
In the wake up the pandemic and the better every time, we believe the thinking about the have become a but the upon a right as a company with a call competitive assets conveniently right because he's been performing across the cycle.
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Well, we have tightened our part of the impact them up with the trends and the risk of mountain that finally, now second tier, creating a high quality category in Q3, we feel actually the stone business well. Many many people on the noticeable recovery the macro economy, let me elaborate on Blake.
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Right Oh, we continued to generate consistent well in a number of registered a user usually that's true.
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During the quarter, we added approximately 1.57.
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Yeah, Hi, Don.
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The second we made notable progress on new business initiatives embodied Inc.
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And we have a mother cat in the pipeline, including JB TB and the Baidu.
The Sam of day, increasing recognition of margin preseason by all kind of.
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But we continue to add the that our capital light model our long on Saturday.
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Hi, Tim.
Maybe 28% of tell her on the nation doing exactly why being on a matter a pace to relative capital by models the.
Yes, even the on certain market condition rapidly called the again, notably the.
The lease a cheap are yet and timing of 35 to 40 point of we expect to see acceleration from the recipe.
Yes.
During the quarter. We also made considerable progress in providing more cash in how it affects the lucia good.
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Convenient grout, a after plenty of selling your debt back never ever during the quarter. We continued to execute our prudent risk management strategy, we've got a flattening tighten on buyers.
Eating the indicator of continued to improve in the.
Second place they want to increase the rate jumped a record all of my point Wafergen and.
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Why on M., one class of rate relative thank you again.
The strong Bracemac magic not only reflects continued improvement in the kind of me I also from a value.
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Robert I was not net.
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When the angle you like Jim quite a bit gets would have a humid on your card on TV and one of the 10 telco GW debt.
I don't see that on you had been the can you share.
And then the impact player we have always ensure that we maintain the highest standards compliant in line with the latest regulation the critical for healthy and sustained about the balance of our business based.
The middle of this year, the regulators have well on a series of how did the and the guy that coated associate with debt the bafflement upping the industry.
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Yes.
We get some kind of summit.
Yes November the I think you should the intervening matters, but I'm a mistake shop internal a micro lending comes out of paper imposing a fan of a restriction on microlending and garden lending operation.
Really the revenue.
Aiming to fund, a lower leverage and preventing the maybe a bit financial market.
Currently outstanding of Delpani, a lot easier.
Mike on any subsidiary of cash flow down 1% of the total on bad and lending a comfortable around the whole point there a 1%.
Therefore based on.
Evaluation, the new rules will have a little impact on the margin.
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Despite the lack of restriction on that worked on leading player to scale back a bit that's.
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How are you a do you what they see on the Dennis.
Good afternoon.
Yes, the recently on the leisure and nobody is on promoting that the thing about the bank of America, the ability of consumer finance and auto finance companies and improving quality and efficiency of financial service.
The you noted we'll balance the consumer finance companies. Please on their operation into book their business with the loan participation passport imply.
In particular, it clearly set out that could be a crappy well the cooperation between consumer finance companies on a long potatoes from pack, one of which well bad BBB loans reputation pack looks like a.
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We believe the BB regulatory movement in the past the fix now are a clear indication that tiny thing on the street is entering a phase of a comprehensive regulation the.
The part of the auto show that rather than a strong handy a crack down on the regulators a promoting the to the others like the putting good practices and a cracking that not so good one basically all drive the healthy the about the mess up the industry and the we are glad to see that.
So between the showcasing the use of that will be a dice it depends on it seemed the kind of issue.
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The cool young adults you got the we're going to be the superior that's the.
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Outside our core business of consumer finance.
Total pro actively exploring new business opportunities and the became more of your book well compared with roughly RMB 20 training on consumer finance.
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Mike is estimated to be around RMB 50, tweeting with over 50% of credit the math on that.
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Well very excited to find that a significant portion of it.
Leasing customers and the owner, which could provide a large pool of potential customers.
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Which I mentioned on the that's definitely a Alex the by definition on got will that continue the use of how she debt.
Despite a bad tying it on a difficult every day your macro economy think industry and I. Appreciate you know what a.
2012, we have successfully the multiples that Pat with outstanding performance, but the back of Twentytwenty, we like having a week from Monte per business day study.
New business initiative, we are highly confident six feet key operational card, yes, you're right that at the end up this year now I will pass the floor to assets to offer some detail on our operational and financial performance.
Thank you Hi, John Good morning, Good evening, everyone welcome to our quarterly earnings call.
For the interest of time I would not the over all of the financial line items on the call. Please refer to our earnings for these for the day.
During the third quarter, we see continued rebound of our business a more momentum as consumer consumer confidence and economic activities gradually recovered post cold at night.
Benefiting from such macro trend, we have experienced a robust consumer demand for credit along with a noticeable improvement in asset quality.
Total net revenue for Q3 reached 3.7 billion versus <unk> 0.3, 4 billion in Q2, and 2.58 billion a year ago.
The year over year comparison is somewhat distorted by the economy of standard change early this year.
Revenue from creditor on service, which we call the kept habit, a heavy was 2.96 billion compared to 3.0 a bit in Q2.
The sequential decline was mainly due to the decline in take rate as we lowered our average interest rate Inc. Later Q3, two and the of the average take weighted for the entire two three is 25.9% sorry, the interest rate for the entire history is 25.9 per cent compared.
Compared with 27.2% in Q2 following the Supreme Court ruling in late August.
Revenue from Praful on service, which of course, we caught a light was seven and 48 admitted compared to 259 million in Q2 if.
If you recall in Q2, we took accounting charges against the revenue the.
On the projected delinquency rate for a certain assets the seating performance benchmark set by revenue sharing agreement with our partners.
As the asset quality continued to improve the actual performance of those assets turned out better than previously expected and the delinquency rate fell below the benchmark. Therefore from accounting perspective, the charge should be reversed in Q3.
Aside from these charges the on.
Non I take rate for the past from service also modestly improved in Q3.
Total operating expenses.
Excluding provisions were roughly flat Q on Q, but decreased 33% year on year.
The yield on the year on year decline.
Mainly reflect significant improvement in operational efficiency, particularly of the deduction of customer acquisition costs six.
Sequentially, we were able to keep operating expenses stable as a we grew our business substantially.
Average customer acquisition cost per user was approved credit line was RMB 172 in Q3 margin modestly higher than the RMB 167 in Q2.
The macro economy recovers demand for online traffic increased significantly.
Choose the is also a seasonally high demand period for all on traffic, particularly around the intense online shopping events such as double 11.
Non-GAAP net income was one of them.
1.29 billion versus 942 million in Q2.
And 756 million a year ago.
Once again, a year on year comparison was negatively impact by the accounting standard change. Nonetheless. This is the first time ever our quarterly net income exceeding 1 billion RMB Mark well.
We are very proud for the achievement, particularly given the challenging market conditions early in the year.
The overall macro economic condition is improving and the COVID-19 is largely contained in China.
However, we will continue to take a prudent approach to expand our business and to manage overall risk.
With a strong operating results and increased contribution from capital light model in Q3, our leverage ratio, which is defined as risk bearing loan balance divided by shareholders equity further declines to a 7.4 times from 8.3 times in Q2.
A 9.5 in Q while.
We expect the continued deleveraging not a business driven by accelerating movement towards capital light model and solid operating results.
Meanwhile, our provision coverage ratio rebounds to 436% in Q3 compared to 321% in Q2 and 400% in kilowatt.
The sequential improvement in provisions coverage ratio was mainly because of a significant decline in projected delinquency rate for a risk bearing loans and our conservative approach to estimate the provisions.
We note that reason day CBRC lowered the provision coverage ratio requirement for consumer finance companies to a 130% from the 150%.
Non restricted cash balance reached a record high off approximately 4.8 billion. In Q3. This was largely driven by strong operating results and effective management of working capital.
Total cash and cash equivalents or a 7.9 billion at the end of the Q3.
On a significant portion of our cash was allocated to the security deposits was on institutional partners and register Aptose of a different entities to support our daily operations, we believe that sufficient cash position will not only the enable us to compete in the ever changing.
Bucket.
For those of position us to potential gross opportunity to capture a potential growth opportunities in the market recovery.
Finally, let me give you some color about our outlook for the fourth quarter of.
From delivering strong operating results in the three quarters of the year, we our previous full year long original guidance origination guidance appears to a conservative we.
We now expect loan origination volume in the first quarter to be between RMB 64 billion to RMB 66 period, which implies a full year loan origination guidance to be RMB 244 to 242 to a 244 billion.
Compared to our previous guidance of RMB 200, 2200 to 220 of it.
The revising guidance reflects current business momentum as well as normal seasonality.
With that I would like to conclude our prepared remarks, operator, we can now takes on questions.
Thank you management.
Ladies and gentlemen, if youd like to ask a question. Please press your right one on the text from keypad.
You can so the press there with two.
Hi, this who can speak Chinese leased candidate I ask a question in Chinese sense on.
Well, they buy English translation yourself.
In addition in the debt.
Having enough time to address everyone on the call. Please keep to one question on a one follow up and then return to the Q1 more question.
Thank you so as a reminder, if I'd like to ask a question.
Please press the of Rogue one on the intensity bad.
A first question is from Jackie Shaw.
From a China Renaissance. Please go ahead.
The guidance on how to the articulates the when the geology.
Non she goes which of course, you to do a cultural shift the shops on the good results.
Would you be angle introduces a assumptions on the touch on what you get a no.
Well, we'll need a bunch of dollar of CECO switching the trick is that a gym lets you should have GDP on the cheap the to the Jimmy also should be Shankar.
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On the peak the.
Volume Susan.
On the likelihood of shouldn't clean simple actually quite a lot of.
On its own clay.
We'll keep the cheese, which will come from CICC the.
Commercial Jim a Tim let me see ultimately to should the usually the production from it on the T. true particular skimpier pushed the balance.
So I will translate my question.
So congrats on the strong results.
My constraints of when they see to a regulation.
So we observed that the a new.
A new online macro lending rooms of ours actually on a high capital requirements of of Africa, So of what.
What the subsidies on the new lending license and and the of flat to apply.
License jointly we thought the parties.
And.
In addition of.
We expect any further tightening on the on the patients a record.
Nation, but whats, the which will be the timeline. Thank you.
Thank you Jackie to a question I would like to our CEO to answer your question at you.
Sure.
The Giga sequentially you get the he knows how bad it.
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On the millions of Amelia and the a meal joint value.
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You, but how many channel.
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The workforce.
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So you do a we really feel bad we continue on.
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The kids will not real cash you go through the year.
If you don't you went on a how will the timing.
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I will translate the I'll get to the Cardium catching up on my card Annualizing thereafter.
Whopping day now hit.
One is about bad going lending after the on the assets we may only have net.
On 1% a lot of upon on the bank, which is a better the small capital and secondly, the Nobody's mentioned some are we going on restriction on micro lending and also the recurring to see an opportunity to therapy of always they already have debt either.
Our GAAP cash biggest debt capital is a required on about 1 billion for a long haul lending assay.
Our fight being asked what our next non ending on.
Looking at our whole business, we now me here.
On the swipes on rather than the micro lending a nice.
The up what we all focus on the on opportunities from.
Not all of the micro lending nice day.
The weight in the long town, we typing not total average at the micro lending license.
There are more if it could be that we have thank you might think of it.
Once you increase that we get the capital eight more.
Thank you Michael.
Yes.
Some of that didn't ramp of we showed you can the which.
And do the math.
She's a chemistry might you do we would take a true on the degree.
The companys growth and so.
So the moves the than the can prove to be.
The two day, you would total debt and ensure the do you have a digger.
On the publicly the.
Well, a minimally come to that kind of.
Im on page two bad debt through a gun to your quick from.
A brief the show.
Countries like on the would the.
The company could do a critical gets from that suit AGA.
Yes, we could book review.
Our book it to them either the pool.
Thank you I kind of.
Yes, yes, the tendency of London the can kinda.
I was hoping you know the.
On the meat that you deem that the good news many of the movie the bigger which would be sort of the come to that kind of.
The figure I use the so jumping equity of so we haven't got to the your fuel.
Thank you regarding the okay.
GAAP.
Great show on long per patient business. Please recall that in July.
The regulatory they've got a line.
On lending guidance of commercial banks and the lease on the base are now hit by the consumer Finance company and on a finance company a lot, but the pace of business.
Now to indicate a regulator spiel they lack of the taking my love the station business.
On the line in the log house, we do not think that make later tightening a lump of Asian business in China, It actually promoting the industry ADR. It's all a healthy you back on that and the sustainable the back net.
No even look at China might hit the traditional banking cannot be bad debt Michael.
Michael Landy Im a finding a couple of therapy on there on the relationship between traditional.
Total share. Thank has a lot of heysham cash flow accompany mandrake and the collaborating we can afford a seanergy and the camtek into operating model.
Thank you and sales.
What would you do compete tied to the a fueling the Lynch Michigan's hot.
I'm going to get to all of US I mentioned that take the.
She goes from quickly the assumption Patrick a quick tool centric does actually kind of cuts from Chen sound, a little bit the us on the.
Now on the you could jump shoots of beyond us the whole just on I should be on the cheap.
So my follow up question is regarding to the ice model as we mentioned the we are operating with out there that take up of bumps. So what is the percentage of the accretion of how were the volume currently and the what is the ops book.
Yes.
Take a billing within a year.
To make a you'll really on the job to the equity on a Doug.
Josh on keeps again.
The tweets usage of that kind of on some deleveraging on that bigger share.
You see that the good.
How do you think it's true today, a casegoods aren't really from now you're kind of on it.
The incentive to digital due to a contingent on it.
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The total production data yet to kind of take a hobby called and go back on.
I've got the hits the Delta on you.
On the mechanical which I think is indicative of the deal of yourself.
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Net debt.
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Good day and begin to a range below your critical to the bigger what's the.
Okay.
And well income from Neil on.
Neil on up.
You day, the EPA model or we call. The bad is being a model takes the account Rafi 20 to 30 per debt and we still.
Continually the GAAP gross momentum he has of these non-GAAP.
From a tap on with consumption.
Consumption in the area when the cheers lumpiness the facilitation path of they require you to have a better you the therein and hydroelectric which I worked on capacity. That's why that's why is there a a lot of their path.
Half of what I in the pipeline.
A Jackie I was at a one point of that as per your question the the the 20%.
So im just mention is actually for the new user acquisition present niche, but a from a loan volume perspective, just given the of.
On a significant larger percentage is coming from old users. So the the new format is the only contributed roughly a 2% to 3% of the non volume we're generating.
Okay. Thank you so much.
Yes.
Thanks.
Thank you and a questions from a a.
Our destiny FCC. Please go ahead.
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Hi, Joseph.
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Jackie just short of that we have.
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Yes.
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The other translate back question the opposite as many regarding the origination.
The Aldo.
So first when we look at the off from a quarter Neil a follow us number on it.
Our factory a small kilkeel. So just one channel check whether the it seems that the so the volume of growth.
The per quarter, it's maybe Jeff a buy a lottery ticket size I'll give them to the existing on.
Okay on the management also share the efficacy the size of follows on from Qualcomm.
Part of your guidance for fourth quarter only.
Only impact the the factors on the volume of channel Q.
Just wondering why the flow of would not be stronger focus on like the <unk> as if it continues to improve but a.
Thanks, Matt.
The last need a cash at the outlook in terms of.
We can nation offline.
Thank you.
Thanks, Stephanie I will let high share you answer more of kind of overview of side of your question. Then I will give you some detailed numbers I show.
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Okay. Thanks, a lot of detail.
First of all the light yes, you are right we have on.
Seem more contribution from existing customers in terms of it on the nation Q3 about the ticket side, yes, we see of actively a stable compared to last quarter about the of kill people on the no asked the reason that we give that the outlook number one is usually the Iraqis NRT in the last quarter.
It's actually casino income Kathy.
The pressure from E Commerce capital and I, the actual debt Kelly.
We are very prudent company, we stay vigilant about any app any on a Larry.
Net about our debt pandemic and the macro conditions down the route and we don't the needs white to the excel aggressive on.
A proud in the fourth quarter.
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Andy.
Oh.
Sure I'll go on to our net debt.
I'll have a very concrete and back to a share now that I can give out a rough idea.
We expect to see continually improved the momentum next year.
Let me elaborate steel assets number one as we explore on white new initiatives.
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Okay. Okay. So the net.
A more on the completion of the existing customers show. So we have analyzed the that 45% a speed to the cross selling product like of the parking did I crazy the customer.
Activity and also the retention of the customers and 25% a due to the operational efficiency improvement. For example, we had like a increase could differ on touch points and to the model information on the last one from the PK sizing quite on a quite a line price of for example flow back on the owners.
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Youre a partnership.
Change of bag.
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For the.
The GAAP partnership net Archie come back on.
And also if if anything more that your cash share regarding the occurrence of Paul class at Catarina.
From bank and expect a contribution into next year. Thank you.
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Sure.
Lastly, we remain cash I feel very active mock panels income so at the end the loss number one for the in it.
Expenses existing users after we analyze well, we're happy to see roughly 20% to 25% of Dan our SMB loans.
And we have downtown in the shot hen.
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Lend money to Dan the assets acquired he had to be bad time now a total of loan book debt.
Currently weighted out some lack of reach.
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Absolutely.
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Andy.
Sure I'll just give you a few updates.
Based on the our cooperation with Casey.
Regarding a balance we add the bad the progress with that taking on the collaborate with TCP, we are able to tap into some lack of quality prime customers suddenly.
Kate keeping the half. Thank you I guess, which provide a tool the didn't make three assets takes day, which means that the pima Tal a risk of matching that they have flow SMB loans.
We are called the banking past that per GAAP with KBB. These will be on down into like the sluggish quality of the business.
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Hi, shoes on fact prepared remarks the dollar.
Interest rates in the minutes I come from the shop, then why there is if I'm on the contributor of a function cost on the especially from now on.
Thank you on my question on took range, especially on the platform side of it sequentially quite a strong quarter on so just hmm Mark if management can share a some color on the reason behind this and the trend of going forward and a related question. The founded a TR level and the funding cost on.
The quarter and if there are some guidance for for the future on for future quarters of that will be great Inc.
Sure. Thank you.
Oh go the reverse order of in terms of questions. The first one the amps of.
Of the funding cost a third quarter, a we continue to see modest a decline versus the second quarter. If you remember the second quarter were 7.2% on average a.
Third quarter, we are somewhere between seven and 7.1% so slightly lower.
That's the funding costs and the secondly regarding to the interest rate for the quarter of the average is a 25.9% the.
The second quarter average as you'll recall is 27.2%.
So.
You see that drop of the mainly because of starting from September we adjust our pricing for the all the products. Following the the high court ruling in terms of the interest rate cap. There. So that's for the interest rate question and then in terms of take rate for capital light model. It.
If you do the math is significantly higher than.
The second quarter, and also probably higher than normal at the the main reason because in my prepared remarks, I mentioned that a bit if you recall the second quarter actually the cap biotech model is quite low what's quite low because.
As I said there is a.
A batch of the assets of the.
The projected performance or in terms of delinquency exceeded the benchmark, we say we set with our partners. According to the agreement mostly the early time sort of a agreement we have always the power of the partners if the delinquency exceeding certain bench.
Mark our take rate will being reduced accordingly.
So that's the main reason flow Q2's take rate per cap by a drop quite significantly but that doesn't mean the.
The actual loss for that batch of a assets.
Happened in Q2, it just the projected kind of a delinquency now as of the macro economy to improve the asset quality a continued to improve so we'll get over the third quarter that particular batch of assets.
The the actual loss is actually.
Much better than previously expected.
And making the delinquency lower than the benchmark we set in the agreement so from a Canadian perspective, the whatever you. The charge you took in the second quarter has to be reversed back in the.
In the third quarter so.
If you just look at the painting a number you see the sort of quarters take rate or a significantly higher than the second.
But if you can read all of these kind of a noises, meaning adding back the those charges to the second quarter and.
Good read of this right back in the third quarter, you would compare to the real core take rate for the cap line model for that number we see very modest improvement in the sort of quarter versus the second quarter.
Got it. Thank you out of just a quick follow up on so the high take rates for capital I'm ordering a for a quarter may be partially contributed through on a reversal of the.
Of the charge during the second quarter, so in the fourth quarter on a forward on a.
Sure Matt. This reversal is one off so the sort of gone and value.
Chris or go outside of the lower throughput.
The normalized the guy the correct on a famine.
I think just in general the that's probably the right the assumption a given the the macro economy continue to improve.
We don't expect any.
Any sort of a.
Peace of assets to exceed any of those benchmark anymore.
So that's the the noise will be gone on either way.
And the overall the.
On the remember that since the September our over a pricing coming down of the bad.
That's for a cap line model the take rate also related to the southern degree of the pricing so for the fourth quarter of.
We will see a flattish to slightly downward on the take rate for the for the capital model.
'cause it franchise revenue center.
Yes on par.
Thank you next a question.
From a decent Chen at a high to international. Please go ahead.
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My question.
The two part one follow up on the lending the appeal.
Just want to know the decline in the April a as it related to you the pressure from the funding partner on from the market.
Do we see a stable nice trend in Q4, and then full Micrel Fine then side, let's say take some business. If you compare with the business model of no class actually the best of all the little bit just completely different from the consumer finance length of stay takes a model, especially on a wonderful acquisition cost.
The cost per customer actually on call. So that's sort of a slightly higher so a.
The green to see similar pattern to in terms of risk management system. They have to cater for pick a ticket size and then longer pen.
It's all a current risk management system, a kind of current mismatch of cater for these change like take a size and time on finally.
On the in terms of like.
Guarantee model they do not provide back to back guarantee to you.
So to the custom but currently like book I went to a business model, we bought back to back on T.. So are we going to you follow the similar pattern. All the we have some a unique sort of like business.
It's a small of though in terms of like I went to your capital light of the business for the.
I suppose it Michael finance loans lets say takes on business. Thanks.
Thanks, Steve I will add to our CEO and the CRL to take a question actually on the television.
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Okay, and the translate as fashion and the Cogen have mentioned before that historically actually have SMB customers and based on that if a lender on.
On behalf of sourcing a week.
A chief of we have different credit line for example for us on the.
Owners of with the license we have around the 80000 to 9000 90000, and what data of in volume we have around the 140000 and for the tax day that we have around the 300000.
We kind of say that the rich woman is about 20% lower than the average of our total assets.
For the duration is about 17 to a month. So there's no fundamental difference from the six months. The peary. So we can see that actually our inc.
Management's mechanics on the kind of work on these customer base and historically, we have also proves that the efforts on as well.
The refinements operation and improve on Mako, we can actually do.
To operate to the customers yes.
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Okay. Thank you.
Thank you that's off which is a tuning session on.
Now I would like to have a back to the management for closing remarks.
Thank you operator, a sex everyone chew up participate on our call. If you have additional questions. Please feel free to contact us. Thank you.
Thanks.
At the.
A conclusion of today's conference call you may disconnect the buy.
Hi.
Okay.