Q4 2020 OneConnect Financial Technology Co Ltd Earnings Call
Ladies and gentlemen, and thank you for standing by and welcome to <unk> fourth quarter and full year 'twenty 'twenty earnings Conference call.
This point I'd like to turn the call and thank you Mr. Jay Chang hwan, Kim ex head of Investor Relations Ma'am. Please proceed.
Okay.
Hello, everyone. Thank you for joining one can ask myself the presentation.
Before we begin and let me go through some housekeeping there for the first.
The earnings press release and presentation are available on the IR website and.
And our remarks today will include forward looking statements, which involve a number of risks and <unk>.
Certainties that could cause actual results to differ materially.
Any forward looking statements that we make all of this call for based on assumptions as of today and.
And the undertake no obligation to update these statements except as required under applicable law.
And when it gets called and we May present, both Alibaba and the.
The financial matches the disc.
And of the limitations of no ISR smashes and the reconciliation.
And this included in the earnings press release.
Now, let me introduce dimension team today.
Mr. You have lunch, when our chairman and CEO.
Jacky Lo CFO and Michael day is the CEO of SME banking.
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All of the Southeast Asian operation.
I will pass it over to Germany, He's remarks would be in Chinese translation, and English and will follow and terminate please.
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The unique <unk> <unk>.
He is probably an understatement to say that 'twenty and 'twenty. It was an unusual year.
Southern arrival of the COVID-19 in the first half of the year cost of selling interruptions to our marketing efforts and the project implementation and then secondly, tactful for the years for more regulatory tightening and forcing some of our customers to adjust their business, which prolong some of the impact on us for Tim.
And especially the business origination segment. Despite all of these difficulties we achieved the revenue growth of $42 three per cent and net margin the expansion of over 30 percentage points. This was no mean feat.
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The pandemic has accelerated the digitalization demand of financial institutions, we have continued to upgrade existing products and the rollout of new ones laying out and offerings and that's vertical Lee penetrated and the horizontally integrated the results reflect our ability to meet the diverse needs of our customer.
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One of our fifth anniversary was met with unprecedented challenges and I'm proud to say that our team did an amazing job.
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Our relentless commitment to innovation and diversification together with the capability and execution has been a driving force of our performance and this will and this focus will continue into 'twenty 'twenty, one, notably our focus on customers.
And I said our job the team and he is on the home of Bunzl total Doctor and the all in some of these gen.
Once a week.
And the potential from digital transformation is immense and we will continue to reinforce our product and sell it as well as further solidify our position fulfilling our mission of the supporting financial institutions to grow efficiently and turning challenges into future success. Thank you for your attention I wish everyone Great House and.
Unfortunately in the year of the ox.
Thank you Chairman Yeung next our CFO Jacky will go through the financial results. Please go ahead, and Jackie and thank you Patricia and good day everyone.
I'm delighted to report the Inspite of the difficult year just gone.
Strategy, two reinforced products and south has proven fruitful to both the top and bottom lines.
Beginning with our topline.
For the full year revenue increased by 42, 3% yield for year, two renminbi 331 billion.
Operations support and cloud services platform were the biggest contributors.
The form of post 82, 1% revenue growth and the period.
The latter of newly launched during the year.
And only had his first of first full quarter in the third quarter.
As we explained on the last earnings call the.
Cloud business allow us to move from the solution level and penetrate first the platform and.
And then the infrastructure layer.
So from a diverse systems will continue to be the main driver.
But we do see the opportunity to broaden our offerings and build deeper relationships with our customers.
Which will allow us to provide for current infrastructure needs.
And more efficiently and manage vertical integration.
The inroads that we made in the first year where tremendous.
With the settlement accounting for $17 seven per cent of the total revenue in the fourth quarter.
And $9 five per cent for the full year.
Operation support and requires no introduction.
And the Christmas night aimed at helping financial institutions improve operational efficiency.
Thereby better managing risk cost and <unk>.
The customer experience.
Products like the AI customer service and roadside assistance continue to gain traction.
Revenue for the full year Rose 82, 1% to Renminbi 1.06 billion.
All of <unk> 32 per cent of the total revenue.
It's the first business segment to cross the 1 billion Renminbi revenue Mark.
For risk management.
Revenue increased by 10, 8% to renminbi 363 million and for the full year.
There was a meaningful recovery and the final months.
With the growth, surpassing 104% year over year in the fourth quarter.
Thanks to rising demand for fast claims and pre lending credit checks.
The strong performance towards the year and help reverse of drop experienced in the previous quarters.
The segment's contribution to total revenue rebound to 10, 5% in the fourth quarter of 2020 from seven 1% of year earlier.
This is our origination nonetheless remain affected by a combination of internal and external factors.
Revenue fell by 21, 4% to renminbi 606 million for the year.
Its revenue contribution fell from 33, 1% to 18, 3%.
The year 2020 was especially challenging for the business.
The softness in the first half continue into the second half.
Internally our optimization exercise continues.
Products that don't meet our internal return thresholds have been placed under review.
We are also reexamining, our relationships with customers with some having and as a result.
There has been a temporary impact to revenue and the net expansion rate.
But this is a critical step that we have to take to ensure we are on track to meet midterm targets and gross margin and to breakeven.
Externally.
The segment continued to face headwinds.
As the technology company and the White label technology provider.
We are not directly affected by any change in the macro environment of of regulations.
However.
Given our revenue model centers on usage and transaction volume.
We are indirectly exposed.
These have led to some softness and loan volume processed by our system.
Which I'll explain more later in the slide on transaction activities.
By customer group the.
The mix has also been affected.
The decline in business of origination has had a bigger impact on third party customers.
The party ratio tends to be higher for more mature products.
Revenue increased by 21% to Renminbi 124 billion for third party customers for the first for the full year.
As a percentage of total revenue.
It went down to 37, 5% from 44, 4% year over year.
It was a temporary impact given the changes in business origination.
Quarter over quarter.
Third party customers post, 27% revenue growth in the fourth quarter.
Stronger than overall and other groups.
And Ping an group.
Revenue increased by 73, 6% to Renminbi 177, 2 billion last year.
The mix went up to 52, 1% of the total from 42, 7%.
The cloud services platform provides strong support.
For this new segment most of the revenue came from Ping an group as we always prefer icke vendor and a strategic cooperation agreement.
The temporary skew to mix will revert as we introduce the cloud offerings to more for Ekati customers.
Revenue from <unk> rose by 14, 8% to Renminbi 343 million for.
Or 10, 4% of total revenue.
While the pace of growth stool and trials the other two customer groups.
It's a solid result, given the macro environment that we're in.
Loop access of single entity, and our areas of cooperation and not as diverse as first party customers helping on group.
Which comprised of entities from diverse backgrounds.
Our most valuable customers of premium customers.
This group is made up of <unk> and third party customers that generate alpha renminbi 100000 and revenue per year.
And year 2020, the number of premium customers rose to 594 for 473.
The net expansion rate, which measures the revenue momentum of the same cohort of premium customers.
84 per cent for the full year.
It was below 100% because of the drop in business of origination revenue that I explained earlier.
The transaction activities will offer more color on this front the.
The number of fast claims increased by 16% year over year to $5 9 million.
This feeds into our risk management and is a key driver of the segment.
Continuous softness however was seen in non volume.
Which effects both business of origination and risk management the two.
For a greater degree the former.
Retail of loan volume processed by our systems fell by 23% to Renminbi 70 billion last year.
Even though there was a seven 1% growth in SMB and low volume to remedy the $41 9 billion and it was not enough to offset the decline in retail.
It was a drop of 14%.
This is the main drag on business origination.
Next I would like to draw your attention to gross margins.
The matrix went up by four six percentage points to 37, 5% last year.
On the non IRS basis, it moved from 46, 4% to 46, 7%.
Getting rid of low margin products, certainly helps boost our margin.
There was some <unk> in the quarterly trend with the with a deep in the fourth quarter.
The cloud business due to its infancy had a lower margin debt average.
Ship and revenue mix weighs on blended margin.
The full year try and smooth out some of these nuances and offers a clear picture of the progress we've made and part of the optimization.
There was some compromise at the top line in the short term, but we have achieved much better underlying quality and margin expansion.
Moving on to operating expenses.
Operating margin improved to $44 four per cent from 73, 1% year over year.
And our operating loss narrowed to renminbi, one for 7 billion from Renminbi $1 7 billion.
The three main expense items, R&D sales and marketing of loss along with G&A all reported a drop in ratio.
R&D expenses Rose 22, 7% to renminbi, one $1 7 billion.
As a percentage of revenue it went down to 45, 4% from $41 one per cent.
Sales and marketing expenses fell slightly by 1% to renminbi $629 million.
For 219% of total revenue from 27, 3%.
G&A expenses Rose 10, 3% to renminbi 845 million for.
Representing 25, 2% of revenue.
And from 42, 5% of year ago.
With me and reviewing our spending alongside products. Moreover, the economies of scale. We have been enjoying has also pushed profitability.
Net loss went onto Renminbi 135 billion for grammar and be 166 billion as a result.
As a percentage of revenue.
Net loss ratio improved by 35 percentage points to 49% for the full year.
For the fourth quarter net loss ratio dropped by 46, two percentage points to 33, 9%.
The year over year improvement was greater than the numbers suggest.
EBITDA Obi, which is our virtual bank and Hong Kong only started operations in the final free months of the year and the revenue contribution was very small.
All of the investment made in our virtual bank and the progress made at our core technology business was even more of years.
And looking at cash flow.
On average our cash burn per month in 2020 was less than half of the level of year ago.
Our operators are on track to break even in the medium term.
And the other two medium targets and medium term targets that we set at the time of IPO in terms of the number of premium customers and gross margins have remained unchanged as well.
Finally, I would like to touch on the outlook for 2021.
The year 2020 threw up some of the biggest headwinds that we have ever experienced.
It looks like the year 2021 will bring similar challenges.
And you might have noticed that once again for the earnings call today, we have had to dial in from different locations.
The first breathing, which was the full year 2019 resolves of last year, we thought it would be of one off.
But a year later of the Covid situation remains fluid and the pandemic continues to be a major headwind.
And also the uncertainty and the macro environment of Stewart risk and debt.
And is also regulatory risk.
Over the past few months, that's been a further tightening of the regulatory regime and especially in relations to online activities.
The operating environment for financial institutions and their partners has become more challenging.
While we do anticipate difficult moments ahead opportunities also abound.
The need to invest in it.
And it has never been greater.
The year to replace and our data system at the adopt the first ever cloud based solution.
Chinese regulators have put their weight behind technology and top technology companies.
<unk> strong policy initiatives for digital infrastructure.
As the market becomes more competitive all players have to explore new ways to do business.
Capture of new revenue opportunities and increase efficiency and improve customer experience. This is exactly what one connect aimed at achieving.
This is why we are confident that revenue growth rate in 2021 will be no less and the past year.
And with continuous cost discipline of.
Net loss will further narrow.
We expect the improvement and the net loss ratio this year to be in the double digit percentage.
Let me talk more about what we have been doing to drive the business further.
And one connects mission has always been to be the top at the one stop shop for financial institutions.
We started at the application level the.
The different applications.
Like car components in the auto energy, we put in the slides.
And we're done and connected and turn into a total package like car manufacturing.
This represents our end to end approach, which enhances our value proposition to customers.
The rollout of the cloud services platform in 2020 completed the picture.
Picking us from SaaS applications for Middle office services into core systems, and finally penetrating down through the call the.
Depth and breadth of our solutions and Palo revenue, giving us a unique ash and the SaaS market.
We're able to cover the full cycle and needs of financial institutions.
Starting from sales and marketing to product development.
<unk> management of.
For Asian management and infrastructure.
This diversification allow us to meet the needs of financial institutions across the different macro scenarios.
And ensuring also the resilience of our performance through cycles.
Products and customers I would like to treat engines that power of our business.
At the product level we.
We have reinforced lifecycle management and monitoring.
This is part of the optimization exercise.
Resource allocation and assessment criteria of set according to the stage of development of our product.
<unk> strategy is the threat Lincoln products to customers.
We have adopted a differentiate ourselves approach.
The needs of our nationwide bank and not the same as dose of a regional player.
The scale of asset capacity of products and customers profile risk appetite and availability of internal resources can be miles apart.
Customer segmentation and more proactive pipeline management and enable us to more effectively upsell and cross sell.
One of the results from the ramping up of sales and solutions is our digital bank in the box.
And the different modules of <unk>.
For supported by the infrastructure backbone and our expertise.
Racial institutions can mix and match, depending on the stage of development and needs.
Of course kicking up the whole package will yield the best performance.
In Southeast Asia, We just signed the contract with a leading regional bank to provide such all around digital support.
But that particular client our offerings span from core banking to mobile banking open banking lending platforms and data platforms.
Our virtual bank in Hong Kong.
<unk> is another example, showcasing our all around capability.
And the insurance, we have also moved for modules two and integrated approach.
The thing at the core is the smart claim solution comprising different modules the.
The contract size goes up as our customers upgrade from single modules to end to end system S y of surface.
The new customers added this year showed the potential.
So for our insurance offerings and mostly domestic.
And our focus in Asia has been to export banking solutions first.
The move to export insurance solutions, we can certainly get one more new revenue stream from new markets.
Our wins and oversea markets built on our experience and track record and China and proof that one connect is able to compete with and win against global companies.
Let me recap some of our overseas achievement.
We want the mandate to support the development of the digital platform for the Abu Dhabi Global market.
Our preferred of West we entered into a partnership with Swiss re and to introduce AI imaging for auto claims systems in Europe.
And back and Asia, multiple deals with leading banks and Malaysia and Thailand.
<unk> reached to support any areas, such as digital banking and mobile banking.
And our virtual bank in Hong Kong <unk> has also officially launched in the last quarter in 2020.
Our opportunities and not just confined to the domestic Chinese market.
And the potential market and Asia is just aspect of <unk>.
<unk> revenue growth was multiple times higher than the overall level.
While the smaller base does help we do see the above average growth continuing.
Our southeast Asia CEO of <unk> is also with us on the call today. She can certainly give you a lot more on the ground color.
Of course, we can never be content with the presence to ensure our success in the future flow of challenges, we need to continue to reinforce our products and south the.
The strategic focus is what's going to drive growth and profitability and.
And as far as to take one connect to the next level and these interesting times.
Thank you I'll turn it back over to Patricia.
Thank you Jackie.
Thank you the lineup for questions.
We are ready to drink and QE.
Thank you ma'am.
If time and I'll get to ask a question. Please press Star then the number one on your telephone keypad again, Thats style and the number one and the telephone keypad. If you would like to withdraw your question.
That's the plan.
Well pause for just a moment the compile the Q&A the Austin.
And at this time in order to ask a question. Please press Star then the number the one on your telephone keypad.
Your first question will come from the line of MS. Camaro Xu from Morgan Stanley and then your line is now life go ahead. Please.
Thank you. Thank you management and congratulations on the very good result, my question is about the cloud service.
The the revenue growth looks very strong and it will be very helpful.
If you can share with us some more detail about what their we have gained some third party customers. So far after our very successful launch with the peanuts and the what kind of services on this on cloud platform is gaining very strong demand.
And.
Thank you for mill, Michael we'll take a question on cloud.
Yeah, let me very briefly introduce our accounts Unfortunately, our CEO.
For the current services not with US today, if we want more detail Patricia and further communication for a more detailed for more detailed information. So all of our financial cloud we have been offering for over 30 customers. We can wish eight was the peanuts.
And <unk>.
The subsidiaries up handful of entities and the App doesn't the.
<unk>.
Non Ping an group customers.
So our cost of services.
And we offer to our first of all we will offer our customers the bundle the service with our staff and the Pos product and its evolution.
And so this is the end to end solution that we naturally offer to our customer and that total solution.
And also because we have multiple years of experience of running the ping on calls and serving the Ping an group and its.
Subsidiaries.
We also provide the visa.
Cost of services to its kind of a customer.
Thank you Sir thank.
Thank you Camille.
Your next question will come from the line of net Elsie Cheng from closing and Fox. Your line is now live Ma'am go ahead. Please.
So the goal.
On the call.
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And also we cannot hear you very well can you please speak up.
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The conference that you do tens of millions of dollars here challenge you on that one Keith can you go through share Gagan and Jackie shut out of all of them and then the net expansion rate that cash back and Japan.
What kind of like I recall, and then Chicago, Dallas and legacy part of allegation of the business origination channel.
No the neck.
And the extra baggage and the shaky interesting equal the Gaza. Once you know share I'll open the premium kuehn, Linda and the tissue and sometimes I think Josh and then ill turn the lunch and.
And sometimes you sort of seen so much of the premium coding via E. G.
The team had the for Luna.
And I guess your amount of shapes and I hope that by my side, even with the on sheet.
A woman of tissue to the quality of our business origination and cash on the loans and they got the risks.
And like I think the G apples and the showroom cash that you can put all of the true chins and got Michele can see what you should kind of lays out.
You can do kind of idea of genius.
And the flagship channel Changzhou could you kind of like.
For example for sure. Thanks.
Thanks, Camille and Shiga Holly Cleveland.
Can you kind of thing.
Thank you management for taking my questions and that's of great questions here.
First one is on the net expansion rate.
Jackie previously you mentioned that it's about 94%.
We continued the legacy part of all of that business originations a revenue impact and just wondering what would the ETE and ex pension date.
Taking out those two.
To the segment and the second question is on the premium customer.
And it just all of the 26% now and the 8%.
And just wanted to understand a bit more about the neo premium customers.
That's why the and maybe some of the details if any.
And if possible with the.
Okay.
The ratio.
In 2020, and actually looking at right now and the last small question.
Just on the launch of nation and.
The management I noticed that it's actually the fourth quarter and.
And looking at these two lines together the according of positive well.
So can we actually expect some sort of the cargo trends going into 'twenty and 'twenty, maybe and on a sequential basis, we can and are starting to see stable growth for these two business lines. Thank you.
Yes, Thank you I'll cede.
And I'm going to first path of Chile, Jackie to take your questions and then we'll see if Michael ahead of any additional color.
Yeah first of all of questions I guess like all three of question as we kind of actually look at it collectively.
If you look at the overall picture.
And if you look at the trend in 2020 for third party revenue growth net.
Expansion rate and also of the premium customers number there of all affected by one common and common denominator, which is the business origination and segment.
And as you know we talk about this.
We have been phasing out of some of our products internally most of the actually came in the business origination segment.
This is origination of is our first this is the second and launch in prior years and so I'll first party customer ratio also of premium customer ratios in this segment will tend to be higher.
And then so if you look at the business of origination numbers for the full year. It was down about 21% year over year, but for third party customers. It was down about 47%. So the magnitude is higher for for a party customers and up and also I talked about this earlier if you look at the transaction of activities the loan volume also.
The process of system file of about 14% year over year. So these are affected the.
The overall like this is origination business and led to like the some of the unusual trend you see for example for a party revenue growth net expansion rate premium customers numbers and also if you look at the macro.
So even though.
Well, we have seen some recovery and economic and also shows the activities and the second half, but the impact from Covid and still have some lingering effects and also we talk about like the regulation tightening so overall the regulatory environment.
Getting tighter as well so but if we adjust like all of these are products that we face all from.
And from business origination Meinie.
Our third party revenue growth.
For the full year, it will be higher than the overall revenue growth rate of 42% for the company.
And also if you look at net expansion rate the reported number was 84%, but we adjust out all of these phase phase of products it will be hired and 100%.
And on premium customers.
Yes, the year over year number increase was modest we only net increase of about 120 premium customers, but as I mentioned most of the premium customers from higher because we launched the business origination.
And the earliest stage so.
During the process when the phase out of these products, we lost close to about 70 customers premium customers from the 2019 pool from the face of all of these products. So if you add that numbers it'll be closer to the 200 net gain of year that we typically see for our premium customers growth.
So that's basically and then if you look at the premium customers numbers at the.
Basis actually getting healthier.
For example, the our pool versus 2019 for all of premium customers.
And it's more of less the same day, if you look at the top 10, it's actually we have seen significant growth there. So for the top 10 in 2019 and it was over $20 million for premium customers.
For 2020 the the.
Apple for the top 10 premium customers was much higher than the two of $20 million.
Yes, so but overall I think the.
The product optimization exercise, that's the right things to do.
Internally as management and we're very delighted to see the progress.
So and we're just doing this for the long term health of the business.
So despite all of this phase of our product impact we achieved very strong revenue growth of 42% and more importantly, I think you see the results reflected in gross margin.
Which was up four six percentage points and our profitability improved by 30 percentage points and so I think heading into 2021, we have built a very strong base for future growth.
And also as the external environment gives us.
And in Georgia, and Madis upside not only from the rebound in business origination and also for risk management and so as you point out day. They go hand in hand.
And also.
The part of the optimization is ongoing process. So we will continue to focus on debt, but the key here is for 2020, we have set up a very healthy premium customer base and also a very diverse product offerings and now so under any circumstances, we feel very confident of.
For the offerings.
Bring good results to outperformance and so in terms of business of origination and also risk management I think I should point out of Q4, we have seen some rebound and the risk management, we see especially the med demand in the the.
For the insurance sides of the fast claims and the London credit checks, so and and also in Q4, we have seen quarter over quarter for for a party customers. That's the growth rate was already higher than the overall sequential growth rate for <unk>.
The versus Q3, so I think heading into 2021 with the very strong base that we have set up we feel very covenant and we will see continuous like sequential improvement in the all of our business segments.
And I'll see if Michael has anything to add.
No thats very already very competitive.
And then.
Okay got it.
Thank you very much.
Okay.
Thank you. Your next question will come from the line of Mr. Carlos and LOE from HSBC. Your line is now lines go ahead. Please.
Okay.
And the defense management and for Chicken and my question. So I Trust US for one question on the overseas and market opportunities. So so we have signed a landmark deal with screen trying and trying to and so just wondering does the mine I wanted to have any pocket and we'll keep you out of regarding the the opposite business such as to.
Turning to Taco overseas revenue contributions insight and medium and kind of three to five years or other operating.
Our debt.
The management is looking after for regarding the open season and.
The expenditures and thank you.
Oh, Thank you kind of thing.
Oh of of Southeast Asia.
And then to take your questions.
Okay.
Thank you very much for the question.
So for Southeast Asia, I think we're seeing a lot of potential and upside with the.
The Kobe situation.
Multiple opportunities and I think Jackie mentioned, one which is an opportunity to cross.
The synergy between our products he mentioned digital banking and of box and this is the trend is in southeast Asia kind of at least several countries of issuing new digital bank licenses from Singapore, Malaysia, Philippines.
And so these are the growth market that we saw in two zero to zero and you gave us the opportunity to put several products across business lines into one solution.
Simply because of all of the digital banks.
It's hard for it we realized from our own experience in Hong Kong. The it is hard to find the right solution for a Greenfield digital bank.
Due to a shortage of Fintech solutions, all debt that could cross the 10 with the solution. So when we put everything to get the we could then fulfill the one stop shop that we wanted to be instead of going after the one single product and upselling them, we could actually bundle everything to get the and keeps the cash.
The main option to choose what he wanted to of that right.
Right now we are building not counting our own Hong Kong virtue of Battle of building the digital bank for Southeast Asia, Singapore.
Singapore, Malaysia, Philippines and.
None of this has a lot of potential and a lot of discussion that's in general and maybe a little bit of a slowing down of Indonesia, but we see that picking up the sia definitely and.
And with the Covid situation that was the bit of a slow down tightening of that debt maybe in the quarter to middle of the three but overall from quarter three onwards, and we see definitely and increase.
Not necessarily and the IP spent per se, but a much shorter deal cycles faster position due to the urgency to digitize. The other opportunity that I think will go way beyond digital bank is the incumbent banks the traditional banks and the traditional bank has also seen then and urgency to do something so they may not need the entire tech stack.
And then our solutions give them the option to opt out what they do not meet and.
And really help them with the digital.
So thats, maybe in a nutshell for southern Asia.
And it causes this is Jackie in terms of of a question on the mix.
Going forward well.
If you look at the of the overseas business. We only started in 2018 and if you look at 2019 overall revenue growth for the for one co net was about 65 per cent and for Sublease Asia, even though the base was low but the growth rate was multiple times higher than the 65%. The same for 2020, our overall revenue growth.
It was 42% and before our Asia business overseas business is multiple times higher than this growth rate, so, but even though the at the mix right. Now is low single digit we expect like each year. The mix will continue to increase and in the medium term the expectation is to get two of like high single digit or low teens.
That range.
Okay.
Thank you Sir thank you for possible.
Your next question will come from the line of song Chung from Keybanc capital markets for your line is now live go ahead. Please.
And thank you for taking my question so.
The one question about me.
2021 outlook.
Managing money.
Elaborate more or provide more colors next taken on by stake and then yeah.
As we expect the revenue growth will be at.
And leave some 42% alright and then.
The net loss ratio could be in the double digit range net.
Net peak so just the.
And just.
Trying to understand.
I understand more and turns of the segment and also perhaps that was helped by the customer type.
Thank you.
And thank you Hans will direct the question and answer you Jackie.
Thank you for your question.
Well as you know as you kind of.
<unk> year of 2020 was an exceptional year and also the that's the first.
Many many unusual things on the fronts and and so some of these factors that we've talked about extensively day of temporary but we do expect many of them will continue to affect the operating environment into 2021 of so for example, like the the Covid situation is still very fluid.
The overall macro environment the vote.
Regulatory environment et cetera, so but.
Nonetheless, we see that the industry is full of potentials and opportunities. So we talk about digital transformation needs for.
For financial institutions, and we see very strong demand in the area and also I think the the National policy is also very supportive of the <unk>.
Development of technology companies, and so and we talk about like the all the initiatives that we have undertaken in 2020 to strengthen our base for future growth. So if you look at the diversification of our offerings ordeals of solutions and to end solutions that we offer.
And we have a very solid base for growth in 2021, but nonetheless, the steel uncertainties in the macro environment. So that's why we gave the guidance our revenue growth will be no less and that the growth rate in 2020.
But also if you factor in like the the cloud adoption and the potential in the area and also the overseas expansion opportunities.
Yeah. So I think that keeps the startup of the base together with our <unk> products and sales efforts to keep to for us to provided of.
Guidance and also we talk about the the net loss ratio and other guidance that we provide for 2021, we expect will continue to see improvement in the area and the bottom line.
We expect double digit percentage points improvement. So as you have seen in 2020, we spent a lot of effort just setting up a very strong cost management discipline.
So that's reflected in the numbers like for the full year. The net loss ratio improved by three percentage points and if you look at Q4. It was actually improved by like 46 percentage points. So we are definitely on the right track to achieve our midterm targets to breakeven.
And I thank Johan.
And Michael would you like to give us some additional underground and color.
And just to answer your question and the outlook for our of our growth I think of overall, we remain very committed the two hour, Oregon and our strategy is to provide end to and tech technology solution to financial institutions.
Know that we had a very good coverage of the customers of the financial institutions. So the next.
And that's the phase focus for US is really a true cross sell upsell more solutions to our customers to make sure each of our.
And net customer, especially the financial institution private customer to use multiple products multiple solutions with us. So that we can generate more revenue from a single customer and Meanwhile, we continue to diversify our product offerings. As you can see during the presentation that we will be able to offer everything and starting from the other.
Ice two path to staff and the problem of the marketing to risk of Atlanta operations customer service et cetera et cetera. So.
So yes, that's true I think our strategy for the next year, we will continue to be on a part of the site to be more diversified offering of end to end solutions and the other customer side, we tried to penetrate the mall to deepen our relationship with those trailing and customized.
Thank you Sir.
Your next question will come from the line of Mr. Ethan Wang of from CLSA.
And is now like go ahead. Please.
Thank you good morning, three questions for me and my third question is on revenue and mix.
Understand.
Our goal.
And for our cloud service.
We have guaranteed customer and have.
From Cowen Group.
Actually a majority of the flowers service revenue from the group.
If that's the case.
And then we put that into the Comcast the total revenue mix.
We expect on tobacco contributing.
As a part of the revenue and a short term and Jackie actually mentioned.
And the Apache and <unk>.
The most contribution and to the total revenue is temporary.
And so how should we think about this.
We expect a couple.
And I've got services. So that's my first question and.
And my second question the farm R&D expense.
And that will have the operating leverage and of our old patch on the downward trends if you look bad debt.
And it's been such a percentage of revenue ratio, but for R&D.
And there is also of the new almost half of the capitalization.
So if we.
How should we think of it before because we do capitalization down the base.
On the type of person and if you can share and may be different in cash.
But part of the different amortization schedule and so if we and like.
Based on a true perhaps the reach and.
Is that kind of change our.
And understanding of the decrease of R&D expense and the future Alright, and so that's my second question and I still question the standard missile.
And management services and.
So we had a strong fourth quarter and for risk management services just wanted to understand on so what is the current down the extent.
It's true.
And for instant lending.
And I think we cannot be the numbers and maybe just some idea of which part of large and it's also helpful. Thank you.
Thank you Ethan all of <unk>.
Number two or three questions and we're going to help them achieve jacky for it.
Yeah, you as well.
On your first question in terms of the revenue mix for call. If you look at the numbers it was about 18% in the last quarter.
So and as Michael mentioned, we have right now about like 30 customers and.
Yes, you rightly point out like the most of the revenues came from Ping an group because we talk about we only launched this business in the the later part of the second quarter last year, and so third quarter last year was only the first full quarter and so and the as the preferred vendors for.
For the Ping an group.
Lucas is on like surfing, the yet financial institutions with anything on <unk> for the cloud services platform business and then but we are also looking for export to third party customers.
The 2021, but I guess in terms of the mix it will stay between like 15% to 20% of our total revenue that's the desk the expectation right now because the.
All of our.
Our goal is to serve the the Ping an group first as we as the <unk>.
And what is still very new and as the preferred brand as we that's our focus right now but in terms of third party revenue I guess when you look at the overall not just for call we expect.
Gradual sequential improvement and as I already pointed out in Q4, you have seen the of the growth rate like the quarter over quarter growth rate for third party customers was already the highest so it was above the overall company growth rate and also about the Ping an group revenue growth rate. So that's the indication that we are moving in the.
The right direction because of the.
There were some temporary impact on the face of our products in the 2020.
The intensity was the highest in the second quarter last year.
So and actually we actually terminate or phase out some of the of business of origination as well as out of products, especially in Q2 in 2020. So that's the impact that we've seen and so.
And then but.
As the numbers indicate Q4, we already see a recovery for the parties growth and we expect this trend will continue in 2021 and.
In terms of your R&D question.
If you look at the the total spending in terms of absolute dollar amount. We expect that number will continue to go up because we are only a five year old technology company and so to to stay competitive to launch innovative products that requires investment.
The investment in R&D. So in terms of the dollar amount. We expect that number will continue to go up but as a percentage of revenue the <unk>.
Spending so that's the expense plus the capitalize them all.
Net debt ratio will continue to decline and.
So and I think over the last year or so you've seen quarter after quarter.
The R&D ratio as a percent of revenue has gone down. So I think we are actually moving in the direction to achieve for like operating leverage and to move to a midterm target of breakeven and and also is true when we capitalized R&D cost.
And when we amortize debt it will impact expense, but.
He also will go for some of it will go into cost of revenue. So it really depends on the nature of the capitalized R&D and so that will also impact the at the margin, but overall as I said, we expect the ratio will continue to go down and on your third question.
And so it can't kick of repeat that.
Oh sure and it's about risk management services and through the havoc.
We're down.
And as soon as the into the insurance and lending related and just.
I wonder if that idea of which part of the larger right now.
Oh, yeah, so I guess the trend you've seen in Q4.
It's mainly come from like the insurance IC and the fast came yes.
Yes, because the SCO some softness in the the lending activities, but nonetheless, we see an increase and uptake in terms of like pre lending credit check, but the the rebound in Q4, that's mostly on the the insurance is the the past claims.
Okay. Okay. Thanks for that.
Thank you.
Your next question will come from the line of Mr. Emerson Chan and both of the KD. Sir Your line is now live go ahead. Please.
Hi, Thanks, and that explain and I have two questions. My first question for the thousands of growth so about the.
Operating revenue for Q4 with yourself and 90% of decline Q on Q.
The gross margin also in Q4 declined sequentially, So just wonder what the and Lisa and the high.
And my second question is how should we look at our net expansion rate and.
What lateral we have assumed in our revenue guidance of 50 of which is a little less debt the cool thing of lots of them.
Thank you.
Thank you Emerson.
Uh Huh Jackie handle your questions the person.
Well I think I missed the if you look at the operators the operation support we actually launched this business in Q4 last year. So if you look at the quarterly.
The growth it was very strong starting from Q4 2019, all the way to Q3.
2020, and the in this quarter it was actually a lap over the because it's already reflected in the Q for base. So we are.
Not really of slowdown, but because of the base and slapping the at the base from 2019, Q4, and so and but I mean, we still see very strong demand in terms of AI customer service and also like the roadside assistance as part of the insurance side. So the demand is still very strong, but the in terms of the percentages.
It's just because of the base effect in Q4 and in terms of gross margin I think if you look at the the.
The overall.
For the full year, we have achieved like for six percentage points improvement. It went from about 33% a year ago two of about 48% this year.
This was the result of the obviously the upgrade and our products and optimization of our business by phasing out of some of those low value low margin products.
And I already talked about this extensively most of them came in the business origination segment and also we have yes congratulate every year, we increase the standardization of our products.
Lower the the labor cost and also the reduction in the business origination segments mix at lowest of the channel fee that we pay as well. So all of these contribute to the the gross margin improvement.
And actually if you look at the gross margin for all of our revenue segments. They have all seen an uptrend, but in terms of Q4, it was a little bit lower than Q3, and the reason I guess you have to look at the trend. So it's the same trend in 2019.
Q4, 2019 was about 44% and for Q3 2019, and he was like a 39%. So it was also.
The decline, but the reason is twofold there of two reasons behind it first of all of it.
And because of the change and mix as you know.
We launched the cloud business.
<unk>.
In the middle of 2020, especially the first full quarter was in Q3 and also the <unk>. The revenue has gone up in Q4 quarter over quarter by 96% in the cloud business. So, but the margin right now is actually lower than our overall level and so and to put it into perspective, the gross margin for.
For example, cloud was about 20 percentage points, lower and risk management, which is the highest for us so the chi.
And mix in Q4 that contributed to the drop in the it.
The quarter over quarter margin and the second reason is every quarter.
And in the queue for.
And there'll be some intangible assets impairment. So when we actually for example of this year, we face a lot of these products. So when we actually.
Record the impairment, who will go into some of that would go into cost of revenue. So that also impact like the debt will cost like fluctuation in the gross margin in the last quarter. The overall like for 2021, I think it's more meaningful to look at the full year 2020 gross margin as a reference point so for 48%.
And the.
Over four four percentage points improvement over the prior year. That's the reference point for 2021 and that obviously will continue to appear on our part of optimization standardization of our products to expand margin and also we expect SD of macro environment improves.
Risk management mix will also improve or rebound so that will also contribute to margin expansion, but nonetheless the.
The cow business Covid.
Continue to grow and the desk changing the mix and with <unk>.
The offset the margin expansion.
But I encourage you to not like for 2021, just to look more at the full year 2020 gross margin as the reference point.
Yes.
And in terms of and your outlook.
As you note the the face of our product is a dynamic process, but as I mentioned the.
Instead of intensity was the highest in the second quarter in 2020.
And in 2021, and we will steal phase out, but the the magnitude will not be of substantial as 2020.
So we expect the anyhow.
Improved of point this year's number and the focus this year has just continued to upgrade our products focus on the <unk> or the.
The sales initiatives that we discussed during the prepared remarks, and just focus on increasing the output for our customers cross selling more products to our customers both the existing and new customers. So that will contribute to our net net expansion rate improvement in 2021.
Thank you.
Thank you Emily.
And then.
Thank you for.
And for your last question, we have Alex Wow. Your line is now live go ahead. Please.
Thank you management and for taking my question. So in our objectives of prepared remarks side of things and you talked about 2021 remains a challenge.
From a regulatory environment perspective can you talk.
What are the recent development.
Turning to the financial and the finger pack of regulatory environment and also what could.
The the new development in 'twenty and 'twenty, one hold of those changes affect some of the China sort of financial and the Fintech space and the.
How are you guys.
Reacting to these changes and thank you.
Thank you Alex what kind of at this question and Jean Michel.
Hi, Alex.
As you know there is a lot of changes and the regulatory environment last year.
And as I as you know, we as a technology and service provider, we are actually not subject to any.
Reputations directly on us.
However, the cost of the regulatory change and.
Our customer.
That is the use of banks or financial institutions, and well have to constantly review the happiness model and adjust the Debbie this model to be more complied with all of those new regulations.
And the that were indirectly have some impact for us because some of them.
And most of our revenue is transaction based and so any change in the business model of the financial institutions will have impact of the business volume and it will have an indirect impact of our our revenue and of course, it is very difficult to forecast the overall trends on the on the regulation.
But you're seeing two things of I'm sure. One is that we will keep our strategy to be the.
To be the technology of service provider to the financial institutions, and we will kind of tied to review our business model to make sure that we have complied and we help our customers to be compliant with all of those regulatory requirements. Now secondly is that I think the visa.
Government continued to encourage the use of new technologies to continue to encourage.
And it infrastructure.
And make sure these of financial institutions, and so we'll be able to provide better service and more efficient service to both the retail customers as well as the SME customer base. I think this is the channel trends that will keep our cash and that's a very positive trend for the overall fintech development in China.
Thank you.
Okay.
Thank you.
And the current yet we have for the call. We will now wrap up the call. Thank you everyone for joining US today. We appreciate your interest in following us and look forward to speaking with you again, keep well and and fuze tea.
Thank you ma'am. Thank you so much business and again and thank you everyone for participating. This concludes today's conference you may now disconnect the spacer.
And how the lovely day.
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And as of today.
And so.
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