Q2 2022 Jianpu Technology Inc Earnings Call

our co-founder, Chairman and Chief Executive Officer, Mr. David Ye. David, please go ahead. Thank you, Colin. Hello, everyone, and thank you for joining us today. During the second quarter, the rolling lockdowns across China caused by the resurgence of COVID-19 resulted in a more challenging macro environment. Nevertheless, we continue to deliver another quarter of strong results with a total revenue of 34% and the bottom line improvement by 9%. The solid results, primary results from four areas. Number one, diversification of our revenue base. Number two, strong omni-channel marketing capabilities. Number three, continued operating efficiency improvements. And number four, disciplined cost cutting and optimization. The results also demonstrated our persistence in pushing forth our vision of becoming everyoneís financial partner. Let me start today by going through the key highlights for the second quarter, then share some of our views on the current macro environment and the regulatory dynamics in China and how they could potentially impact our businesses before turning over to Oscar to go through the financial performance. First, our diversification strategy has enhanced our business resilience and supports the strong revenue growth under the current challenging macro environment.

Nowadays we generate our revenue via our platform by offering recommendation services of credit card loans and insurance products as well as other products and services. We are cooperating with 1,500 more financial service providers and other customers.

Throughout the ecosystem of consumers and small businesses credit product offering, we provide our marketing and user acquisition capability, data analysis and risk management solutions and other technological services.

Enabling financial institutions digital transformation.

Geographical-wise, we serve our users across the country with a very low concentration risk.

In the second quarter of 2022, we further penetrated into

The seven tertiary cities with around 65% of the loan recommendation revenue, contribution from 7th and 3rd tier cities versus 55% in the first quarter. As you may know, 7th and 3rd tier cities, the impact from COVID are actually less severe compared to Shanghai and other larger cities.

In the second quarter, the resurgence of COVID has prompted multiple lockdowns across China. Some of our business operations still rely on face-to-face communications.

and on-site implementation with customers.

These current measures have brought about certain challenge. However, thanks to our diversification strategy, our recommendation business continued to achieve significant growth. With revenues increasing 38% year over year and 42% quarter over quarter. In particular, we kept our market leading position in the credit card recommendation business.

And the revenue from our credit card recommendation business maintained robust growth of 36% year-over-year. Our long recommendation business also benefited from a more diversified customer base with revenue growth at 42% year-over-year.

Second, we continue to enhance our omni-channel marketing capabilities to enable the digital transformation of the financial industry. This allowed us to capture the increasing demand from financial institutions for identifying and engaging new users from different geographics and younger demographics.

Our big data solutions also improve the risk management capabilities and the customer acquisition efficiencies of financial service providers.

In Q2, we made certain achievements to further diversify our user base and strengthen our omni-channel solutions. Our social media and partner program continued its leading position.

Delivering both growth and efficiency.

Our share in mainstream media and acquisition channels with various consumption scenarios continue to grow, solidifying our widely recognized position in the industry.

Another initiative worth mentioning is our efforts in promoting DCEP, or Digital Currency Electronic Payment. In recent years, the Chinese authorities have focused on the quantitative development of the economy.

Primarily driven by ongoing digital transformation including the introduction and the promoting of its digital currency, DCP.

Since 2019, the central bank has conducted a pilot test of DCP in different consumption scenarios in various cities. Leveraging our leading position in our recommendation businesses, our team had a significant win in partnering with a large bank to market the digital wallet.

We rely on the government's commitments and investments in promoting the application of the DCEP to explore further business opportunities in this area.

Third, is the ongoing improvement in our operating efficiency.

Against the backdrop of medical economy and regulatory uncertainties, we continue to strive to achieve a good balance between managing our continued growth and operating efficiency.

Our overall ROI, or revenue from recommendation services, advertising and marketing services divided by the corresponding cost of acquisition and promotion, continues to improve by 8% points sequentially in the first half of 2022. Of which, the ROI of our recommendation businesses improved by 7% points versus the second half of 2021.

We also continue to see an encouraging trend in our new initiatives, delivering an 11 percentage points ROI improvement versus the second half of 2021.

Finally, our disciplined cost, cutting line optimization measures

helped reduce loss significantly. As we continue to optimize our operating costs...

and expenses while better utilizing the company's resources.

We have enhanced our overall productivity, leading to a margin improvement and a lower net loss in the second quarter.

Our operating loss reduced significantly by 48% year over year, while our adjusted net loss margin further improved by 8% points compared with the second quarter of 2021.

Over the coming quarters, we will maintain this approach of discipline spending, striving to achieving further improvement in our productivity and margin.

I will now take a few minutes to discuss the latest macro environment, regulatory dynamics and our business outlook.

With regard to the macro and regulatory environment, the rolling lockdown across China has prompted a moderation of real GDP growth to 0.4% year-over-year in the same quarter.

Nevertheless, the State Council is actually meeting held in late July .

stated that China's economy should grow with a reasonable range this year.

with a particular emphasis on the stability of employment and inflation.

This should be achieved by the expansion of effective investment and the continued promotion of private consumption.

Meanwhile, the meeting also called for the active and consistent development of the digital consumption.

We believe the government will maintain a more relaxed physical policy and monetary policy to revive the economy in the near term.

We have seen signs of liquidity injection into the financial system with banks accelerating their long growth recently.

The government also calls for continued promotion of private consumption, particularly for developing digital consumption.

This should be positive catalyst to facilitate further expansion of our loan and critical recommendation businesses given our leading position in the market.

The government issued new regulations and policies in terms of internet lending and credit card business, advocating banks to engage in digital transformation, product innovation and the development of our own and credit businesses.

We believe this should benefit the market leaders like us.

Lastly, the COVID control measures

Still, there are uncertainties.

that may continue to have impact on certain segments of our operations for the next few quarters.

However, our robust and resilient results for the second quarter highlighted the strong benefits of our diversification strategy.

Thus, we are cautiously optimistic about our business performance for the second half of this year.

In summary, we believe our strong business model, investments in our omni-channel marketing capability, leadership position in digital transformation solution, and disciplined cost control measures will ultimately deliver better business results for the next quarter.

I will now turn the call over to our CFO , Oscar Chen, who will discuss our financial results. Thank you.

Thank you David and hello everyone.

As Davey mentioned earlier, we delivered a solid financial result with resilient revenue growth and healthy market improvement in the second quarter of 2022.

Our second quarter results reflect our persistent efforts in diversifying revenue streams and optimizing cost structure.

Our total revenues for the second quarter of 2022 increased by 33.9%.

to R&D 265.1 million from R&D 198 million in the same period of 2021.

Our market's leading position in recommendation building is sustained, with total recommendation service revenue increasing by 37.8.

percent to R&D 204.7 million from R&D 148.6 million in the same period of 2021. On the back of the 36 percent and the 41.5 percent year-over-year increase in credit card and loan recommendation service revenue respectively.

The increase in RAMU was mainly driven by the increase in number of long applications.

43.3% and the credit card volume 33.3% on the back of our geographic diversification strategy and omni-channel marketing strategy.

While the average fee for credit card also slightly increased to RMB 113.4, the average fee for loan applications increased by around 9.2% to RMB 15.4 in the second quarter of 2022.

The revenues from this data and system-based risk management services decreased by $2.5

37 percent.

to RMB 22.8 million in the second quarter of 2022, from RMB 36.2 million in the same period of 2021. The decrease is mainly due to the COVID-19 impact of cooperation with customers, as well as the product at this month.

Revenue from advertising and marketing services and other services increased by 187% to RMB 37.6 million in the second quarter of 2022.

from 13.1 million in the same period of 2021.

primarily due to the significant growth of insurance brokerage services.

and initiatives of other new parameters.

Let me now move on to costs and expenses.

The cost of promotion and acquisition mainly consists of the expenditure relating to our marketing efforts and activities, which increased by 41.4% to RMB 191.8 million in the second quarter of 2022 from RMB 135.6 million in the same period of 2021. The increase was in line with the growth of our revenue from recommendation services.

insurance brokerage services, and initiatives of other new communities. In the second quarter of 2022, we have seen continuous trend of efficiency improvement.

Our line of recommendation service, advertising and marketing service, and other services have shown encouraging improvements with a sequential increase of 8.0 points in the first half of 2022, reflecting our continued efforts in achieving a good balance between goals and efficiency.

We continue executing our cost optimization methods as such.

Cost of operations decreased by 21.5% to RMB 20.4 million in the second quarter of 2022. On the 26th, the total cost of operations decreased by 21.5 million in the second quarter of 2022.

million in the same period of 2021. And our sales and marketing expenses, R&D expenses, general and administrative expenses decreased by 11.5%.

and 25.3% respectively in the second quarter of 2022, compared with the same period of 2021.

Measured as percentage of total revenue, sales and marketing R&D and GMA expenses in total were 33.5% in the second quarter of 2022, reflecting a decrease of 20% of the points from the same period of 2021.

with our continued efforts in optimizing our process structure and improving the productivity of Office Spirited.

Last time operations was R&D 35.9 million in the second quarter of 2022 compared with R&D 69.5 million in the same period of 2021. Our protein loss margin was 13.5 in the second quarter of 2022 compared with 35.1 in the same period of 2021.

Our net loss and non-gap adjusted net loss were respectively RMB $35.9 million and RMB $32.2 million in the second quarter of 2022 compared with RMB $44.5 million and RMB $

40.6 minutes in the same period of 2021.

Given the growing scale and improving efficiency, our net loss margin and non-gap adjustment net loss margin improved by 8.9 and 8.4 percentage points, respectively compared with the same period of 2021.

As of June 30, 2022, we maintain a balance sheet with cash, cash equivalent, and the restricted cash and time deposits.

of R&D 673.2 million.

So with that, I will conclude our prepared remarks. We will now open call.

to questions. Operator, please go ahead.

Thank you. We will now begin the question and answer session.

To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster.

Thank you.

And the first question will come from Calvin Wong with Spicer Capital. Please go ahead.

Thank you for answering my questions. I have two questions.

one related to strategy and COVID, and another one related to your finances. The first question, the management mentioned that the strong results in the second quarter were benefited from your diversification strategy.

So could you give us more color about this strategy and how does it work during the period of multiple lockdowns across China?

Also, how do you expect the COVID situation if it continues would impact your business trend in the second half this year?

The second question, we noticed that significant margin improvement in the second quarter. Could you please elaborate the main drivers behind? Also regarding the cost optimization measures you mentioned, how should we expect the impact of such measures in the second half of this year and the cost base going forward?

Thank you, Calvin. This is David. I will try to answer the first question. I believe Oscar to answer the second question. Your first question is regarding diversification strategy. So definitely from a strategy standpoint, we believe diversification has helped us defend the headings.

from COVID lockdown and other challenges. So I would answer the question from forefront. I mean, the first part is we diversify from our product segments, from our recommendation services. And the second, we actually diversify geographically, I mean, across China. At the third point,

We also have diversified the internal marketing and traffic acquisition source. We have diversified that as well. And the last piece, demographically we have seen our user base have a more diversified demographic coverage. So I will start with the first one. I said...

As you guys understand our revenues are from multiple product segments such as long recommendation, critical recommendation, insurance, brokerage business as well as other adjacent categories. We did see our recommendation business like growth, revenue growth around 38% quarter and 6% to Blades into 20% quarter rather than new yearauders. As you guys understand we do see our onus as it is through different categories significantly we saw the level of our unit Gova could, and to be honest it should be

We have also seen that adjacent to business revenue growth is over 100% of it. Of course, it is a small base. So this diversified revenue by multiple product segments enabled us to grow more strongly and also robustly in the second quarter. The second piece in terms of geographical diversification...

third tier, even fourth tier cities, those regions actually have less impact from COVID compared to big cities like Shanghai. So that definitely, we see a more stronger growth in lower tier cities and even some of the new areas.

So we have some small number of in terms of lower tier cities. So the third piece in terms of our marketing and the traffic acquisition source, our social media and the partnership program as well as our omni-channel or marketing tools actually we are able to track people from some consumption scenarios such as from...

and shared economy and younger lifestyle and also digital savvy channels and the partners. So that definitely helped us to weather the storms or the from the lockdowns. So lastly, in terms of our user acquisition, we have analyzed our demographic distribution.

additional growth driver in terms of this young and new urban residents, they are looking for enhanced financial product and services. Now we are able to track those young urban generations, younger generation and demographic residents and recommend it to our like also more diversified number of financial institutions.

So I will stop here for our diversification strategy. But you also asked the expectation from the COVID situation. As I mentioned, the COVID situation is likely to continue for the next quarter. We would definitely hope that the situation will be improving for the foreseeable future.

Thank you.

Okay, I will turn it over to Oscar for the second part of your question.

Thank you David and thank you Kevin for your second question regarding the drivers behind the marketing improvement. I will try to answer your question. As we emphasize and continuously deliver in the past several quarters, our strategy to manage the business is to balance between growth and efficiency.

So, in the current market sentiment.

We are allocating our internal resources based on the contribution margin, i.e. the profitability and secondly the growth potential. So this is why we can achieve better efficiency in recent quarters.

In addition to the efficiency, I think another driver is our discipline called the control, particularly in the kind of micro environments with some uncertainties.

cost control is quite important to manage our business.

control is quite important to manage our business. In the first half

We focused on consolidating overlapping resources among our various business lines to enhance our productivity and also reducing the fixed costs.

we see clear results. So, extent is as the same, you know, sales marketing, GMA, and the extended revenue were 20 percentage points lower than the same period of 2021 down to, hmm.

33.5% of revenue and that lead to our operating loss margin improved to 13.5%.

Of course, I want to mention some cost optimization may have some lagging effects which will further benefit us in the second half of this year.

you know

If you look into the significant opportunities here, anticipating the challenges and uncertainties, we will further cut down the resources.

allocated to the pyramids with lower efficiency.

And of course we will think about the allocation between the different business lines. We will allocate more to the business lines with high probability and cut down the resources for the business line with lower efficiency.

So that's our strategy. And also at the same time, we will further optimize some contract-based fixed costs when the contract term is due.

So along with the growth of our business and our further optimization on cost side, we are expecting a better model profile down the road.

I'm not sure whether this answers your question.

Very clear. Thanks.

This concludes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect. Thank you for attending today's session.

Thank you very much.

Good day. Good day.

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