Q2 2019 Earnings Call
I must advise you that this conference is being recorded today.
I would like to highlight conference over to your first speaker today Mr., Tony Hawk Senior director of capital markets. I think you had these go ahead.
Thank you operator, Hello, everyone and welcome to Lashing second quarter 2019 earnings Conference call. The Companys results were issued earlier today and posted online.
Joining me today on the call are Mr., Jay show or founder Chairman and Chief Executive Officer, Mr., Craig Dunn, Our Chief Financial Officer, Mr., Ryan <unk>, our Chief Risk Officer, Mr. Stanley. It's all our senior financial director and other members of our team for todays agenda Mr. Shao will provide an overview of our recent performance and probably let Susan will discuss our financial results and Mr. Lynn will discuss our credit performance before we continue I refer you to our safe Harbor statement in the earnings press release, which applies to this call as we will make forward looking statements. Also this call includes discussions of certain non-GAAP financial measures.
Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to their most directly comparable GAAP measures.
Finally, please note that unless otherwise stated all figures mentioned during this conference call are in living B.
I now turn the call over to our CEO , Mr., Shao, whom I will translate for.
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In the year to date with the consumption needs of our high growth educated acquisition capabilities.
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The strong growth in the second quarter proves the substantial potential of our new consumption strategy well all the reasons to believe that through lashings accumulation of AI big data and technological capabilities over the past six years rushing now has the ability to completely meet and service to consumption needs of hundreds of millions of users and to fully handle the hundreds of billions of transactions that will come with the next phase of our development.
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And the second quarter National could you today. He showed typical adult from consumers and targeting which are mostly in the general collateral do you look at the well that's what I told you by John I do wish him tend to want to temper the proselytizer utility cocoa double that.
On the basis of these capabilities. It is perhaps no surprise that machine continues to gain the broadest and most diversified level of support from a variety of institutional funding partners in the second quarter, we signed multiple strategic agreements with IC B.C. Ming said and done some large banks insurance companies and consumer finance companies covering a range of cooperation, including technology Smart sales payment risk control data and many other fields today lashings institutional funding partners already number over 100 in the second quarter close to 80% of new loan originations came from our institutional funding partners.
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Our core segments have filled us with confidence in our company's future. As a result, we have also appropriately raised our full year loan origination guidance, which we now expect to exceed that in new policies. We strongly believe that in this macro environment listing is focused on the high growth educated know adult cohort will continue to provide us with tremendous room for growth.
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Next I'd like to invite our CFO Craig to discuss our recent financial performance.
Thank you Jay and Hello, everyone I'm pleased to announce that we have once again delivered strong results for the first all our restatement of our first quarter 2019 evolves.
In connection with the.
Arab off of the company's unaudited financial information, we identified some arrows that overstated revenue for the quarter ended March 31st as a result, we have restated the.
On the financial results for the first quarter.
I've been identifying this ourselves we undertook a review of our relevant internal control process have started to implement additional measures to address potential control deficiencies.
For more details please refer to our earnings press release.
Now moving to our second quarter results in the interest of Hi, I will not go over line item by line item of our financials for a more detailed discussion of our second quarter 2019 results. Please also refer to our earnings press release.
Total operating revenue for the second quarter 2019 reached 2.5 billion driven by strong growth in our financial servicing call.
Adjusted net income was RMB 671 million, reflecting our continued strong growth in the performance.
It should be noted that our year on year comparison basis last year in the second quarter 2018, net income benefited from a one time tax gain.
Net income for AG App for the quarter was RMB 3.46, a fully diluted basis non-GAAP fully diluted net income per ATM was RMB 3.69 again it should be noted that the second quarter 2018 benefited from a onetime tax gain.
We continue to see the future potential of our business model in the performance of the customer cohort, whom we acquired in the first quarter. Two 2015 will balance is now over RMB 13700.
And who's 30 days delinquency rates is steel approximated, 1% with a stable level of quarterly active rate and 77%.
Operating leverage operating expenses as a percentage of average loan balance is now 5.5 cents year to date and a now advertising on the marketing advertising DNA and R&D was 2.1%, 1.3% what percent of the 1.1% average loan balance respectively.
We currently have 50.2 million registered users and 13.5 million customers with credit.
Up from 8.9 billing in the June Thirtyth 2018, we acquired nearly 1.3 million new active customers in the second quarter.
Overall, our average credit limits with approximately RMB 9400, why our Tanner has increased to 12.8 months.
Our weighted average NPR was added to 25.3%.
In terms of our funding for the quarter approximately 22.1% of our funding for new loan origination came from our.
Julie Hi, Praful and a 77.9% of our funding for immuno observations came from our institutional funding partners.
For guidance.
Jay already mentioned, we have we are pleased to announce other we are raising our guidance. We now expect 2019 more in relation to exceed.
Maybe.
Hundred SMP billing.
We're at that nine to 100 billion our previous guidance.
Next I will discuss our credit situation situation roughly.
Thank you Craig.
We continued our jump I spoke with you during the quarter.
Our credit quality continues to be high, though we spread our if I discussed are the charge off ratios remain at around the same levels.
How many based crosscutting ratio remains low at 1.19% and though we continue to see comprise Coleman.
As our lifetime charge off ratio is just over 2.5%.
Before we expect our credit performance to continue for the full year 2019, we that I conclude our prepared remarks operator. Please proceed.
Ladies and gentlemen, we will now begin the question and answer session.
If you wish to ask a question. Please press star one on your telephone and wafer name to be announced if you wish to cancel request.
Please press the pound or Haskins. Please ask your question in Chinese Cpk and then can you repeat the question in English.
Your first question comes from the line of Edwin you.
From Bank of America Merrill Lynch. Please ask your question.
Good evening, Thank you for taking my questions.
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Phone side, you'll see that some job now holger Carnegie way Dol woman died sources from third quarter show hopefully the Dol can shoot you get so I have two questions. The first one is regarding the recent news flow on the regulation and then secondly, about your sales and marketing clause.
We have seen very strong user growth along with higher sales and marketing costs. So just wondering in terms of strategy or was it more just a second a one time promotion or is it a strategy that we should be focusing on user growth, which also implies potentially pretty high sales and marketing costs from them yet.
Thank you.
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This is tied into the you got to do with high higher than I saw that you know that is a function of what kinds of what equity that you got function. So Tim as you go into that I assume that you guys could you just hoping that you got you got into it also do we how do we do to help with this obviously loans are going to use to talk to you about so not because I don't know I'll just tell you why we didn't know Peter Peter.
England, which I think is important and that Asia.
Good good illustration doorways Toyota in the existing one agency so until those issues it inside out yet, but I know if you want to Gulf will depend on a few more young woman, but they conduct is a woman to that but I mean will you tell me what sounded like I've done the Georgia woman in line with its a different you want to go into the tone that goes with it and so no I think those advantages are they just want to dial that they cannot cause a diet I suddenly you got you like I got to bring that down as you go.
You don't know until maybe Mike Duncan diner base salary increases were due to attrition woman well many years or younger consumer wasn't for these users on the is a fairly stable.
In particular, when it comes to the assistant lending model as well as for consumer finance overall the government. We can see is definitely encouraging consumer finance in particular has stepped up with policies to support that.
On the new PTP rules or other things associated with PDP, we have seeing.
Different regulatory authorities in different jurisdictions say slightly different things news wise and of course, we have received some of the news as well no overall as a whole entre into it we've heard some of these things and we're very much prepared us well and when it comes to the three reductions if you will that the government would like to do we're also in the process of executing it reducing the scale a number of users et cetera.
Now, it's notable and perhaps the most important to highlight that while this is happening. This situtions funding is strong it's very strong in fact, well you can see from our data that while the PDP well treated is not only not growing.
Where it is in fact, it's flat or even down we're actually still growing and we're still growing rapidly and we still continue to deliver on the result, and I can say also from the latest numbers in the second quarter days and times, where 99% loan originations is in fact coming from institutional funding. So again, that's 99% nearly all its coming from institutional funding. So in the future. If there is impact continued tightening continued if you will restrictions around the PDP.
We can see that basically will continue with our growth whether it's in terms of our loan origination scale and will continue to meet the numbers.
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Yonah immediately you got into in him well look I know, we're going to do that you got some bundling that with is that you guys sounded BDC that usage per customer. It's basically over 100 looming be now this was the more immediate policy in the more immediate things that we need to do but for the third quarter. We expect to see continued growth as well in terms of our customer numbers.
Okay. Thank you.
Your next question comes from the line of Alex <unk> from <unk>. Please ask your question.
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Oh, so I'm like a industry trend over there I think because of my Cushing and could you share your views on your future trend on Tees up because for Christmas.
And my second question is on your institution of any model.
So I would like to know how what percentage of your current institutional funding is now under.
A complete with a free model, where the and partner to take on the risk and given that we should expect such a model will lead to a slightly lower take rate for no. She so how should we or expected future margin for publishing.
Given given the gradual shift and and second do we have any specific pocket percentage on what percentage of of our institutional funding will be under such a risk free model in the future. Thanks.
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Is up in the second quarter, we have spend up to 100 million in terms of advertising and brand building, but overall, our number increase in traffic, which then of course it leads to additional customer acquisition for the quarter.
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So well with our study a question on the institutional funding and in particular the type of funding whereby we have a full pass through of the risk to the institutional funding partners.
And where the profitability can be lower I think it is perhaps best that we pointed out whether it's on the guarantees or the risk faster as well as the economics, it's basically a negotiation and it depends on the ultimate economic split and then we adjust depending on the exact situation. So right now you can say that overall, there's probably not a particular goal in mind for the future rather it's something that we continue to negotiate which will adjust depending on the market environment.
Okay. Thanks.
Okay.
Once again, if you wish to ask a question. Please press star one on your telephone and wait for name to be announced if you wish to cancer request. Please press the pound or hash key.
Please ask your question in Chinese if he can then kindly repeat the question in English.
Your next question comes from the line of Lucy Lee from Goldman Sachs. Please ask your question.
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I'll briefly translate my questions. The first one is on couponing caused.
We notice that even though the quarter to quarter funding costs has been stable, but the funding cost in the first half of this year has been a more expensive than the average of last year given that.
The liquidity conditions not from the bank side relatively abandoned.
No Oh, we got can we fully expect the funding caused <unk> to us to gradually M becomes cheaper for the rack up the.
And then the second question is regarding the the restatement of the French or the financial woman without seeing the one Q.
Oh.
We very much appreciate it if if management could explain.
More details on the restatement and what what kind of what have we done to prevent such things from happening again, and then related to that we notice that interest yield for the on balance sheet loans for the one Q2 will be a lower down to 20% well and Weve observed I think and if any gap between the 20% versus the MTR off 25% would appreciate a explanation. Thank you.
So here you go buy new funding requirement.
I'm going to go to accomplish that.
Tony.
Sure that is not going to go away.
Jake Bartlett that question.
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To call how long the funding pattern she.
More at the balance sheet portions, which are historical so as we all know last year, the historical cost tended to be more expensive.
Now for the new funding that we had and that's not necessarily the case, but it should be noted that our approach to funding is that we take a diversified approach. So in terms of the diversification in terms of the motto. It can vary and adjust according to the market environment, but we do very much focused on a few things when it comes to our funding which is to continue to manage and maintain diversified sources to spread the risk and most it perhaps most importantly.
Maintain multiple channels and options, but again I'll be more expensive costs that might just be the historical cost if you will.
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Okay. So overall I'm not accounted for or attract property now since we certainly have done a lot to verify and to put a new processes to order and also to confirm on a lot of the information and perhaps it's worth.
Pointing out that a lot of this rose as a result of the fact that we've adopted six or six and also new systems. So it was discovered by us during the onetime process adopting new systems. So it is quite likely that this is if you will a onetime item that results from this as a result, but we very much have put in new systems in place as part of the process to prevent such a thing from occurring again.
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So you think it should remain kind of in a wheelchair.
So overall I think.
I want to emphasize that we're pretty confident now in our ability to prevent such an incident from occurring again, Oh my God underlying in our business. So basically it might not be a good representation.
The business.
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The first thing that's probably worth mentioning and discussing is the overall bank credit card environment. How it should be noted that two years ago, a fintech was really real cars and in fact, a far too many cards to lower quality borrowers. So overall I know for a fact that the quality of the borrowers by the banks.
Are definitely down over this time period.
In fact, one can even say that in terms of the two years. The difference in terms of the quality of bars is substantial enough now that the new borrowers a lot of them. There is actually very substantial overlap where payday loans. So naturally as a result, what you are saying today is that the credit card numbers are in fact worse, but for us.
Cohort that we're targeting Rd educated young with dogs and of course these are far better quality credit then the payday loan borrowers.
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You read the warm seen that audience that youre starting to see we will mention any hedging either what sort of is your Swiss tax pursue whether you see it in 30 here. We've got to stay saw steady hits those are sort of national disorder toxicity or what is going on there.
Also it's worth noting that these are individuals who very very much care about their future. Therefore, they also care about their credit and managing their credit which is why we continue to be stable and we continue to maintain a very very good position now with regards to the rates. You mentioned right now were about 1.49, historically, where I'd say between 1.4 to 1.5.
So this is clearly within that range and stable.
Now the 1.49 part of it is the fact that during this time, we have been doing some tests and are doing some experiments. So as a result, you can view if you will the changes as the costs R&D expenses associated with those tests.
Would you say.
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Since we're confident that the credit particles on eyesore publicly is equate bought seasonal piedemonte centers on.
So with regards to the next 12 months, we'll certainly continue to.
Maintaining a very careful of.
If not conservative outlook and be very very careful about the market risk, we'll certainly keep a close eye on situation, but we'll certainly do all the things it requires to maintain if you well very conservative and good quality credits.
Secondly sentence and the natural thank you that's very helpful.
You have a follow up question from the line of Susi Lee from Goldman Sachs. Please ask your question.
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Fully avoided this client group by far.
And the second question is on the <unk> the growth our outlook for the second half can help to.
Lastly for the growth for the second half would it meaning come from existing clients or the new kind of clients and if it's from for the new clients.
How how do we acquire such clients is there from the offline.
News and I really saw the online and it would be great. If you can explain more on the lit low Hawk huh.
Thank you.
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That's really just some students he wasn't just below 40 years old or also someone who's basically the delivery guy, but those are actually customers that we wouldn't want so hence we actually avoid a lot of customers that the banks we go after.
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So today I think one of them. So I don't want to make sure that I can assume to see wasn't anybody that will go to pay down decision. So I'm not gonna they'll go because it wasn't as if that Eagle Ford Cook is as bad as it kind of local content.
So the odds you told us it was a little because some people this was going to be as it is yeah.
If you look at your holiday so that's leasing.
Good good. Thank you get a hidden gem that so I think it was only two months into the third quarter, we have probably accomplished a not small part of that 70 billion already so hence as a result were very much full of confidence and our ability to achieve our goal.
With regards to the customer acquisition things are very much not just on track, but doing very very well. In fact, we are looking at a third quarter, that's going to impact also even be better than the second quarter.
Weve acquired actually something like a million customers in a single month, so things are definitely doing very very well.
In terms of the.
Closed loan origination that's going to come from new versus so we're looking at probably something like 30% coming from new customers and overall in terms of how we acquire customers.
We have talked about this earlier, but essentially it's going to always be an integrated approach that include grades offline referrals, our e-commerce as well as advertising and promotion.
Hi, this is <unk>.
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Are you considering its own Georgia, if you went to the Oh, what I'm going to all sorts induced Oh, sorry go technology go Oh.
Maybe resins and choice in a more biologicals financings and often through his own analyses RG cool Oh, you were well controlled and then if you do can only use it as you go on console franchise rodeo simply there's all that up Oh, San Jose San Diego kind, sometimes people can go and got off on a whole cool woman sooner than they were at home, but not a whole if you're getting a good do a choice you know, we'll get who's tried and be nominated something that either you're going to see or can they go beach and we don't want my goodness, if we Oh no.
Those two servicers all my Oh, Yes, you go onto fourth home just realization hit it usually measure what I didn't tell you Oh, you're going through and what are the <unk> says are you a woman to ensure that you are early read a novel findings how much I'm going there. So thank you for taking my questions. My first question is about the custom acquisitions. So its very excited to hear the company has recently Oh I'm, telling you increase the new customer per months to overcome. He then so just wonder as we can see that when a customer increased selling and marketing almost oh, a PR calculated does that include or exclude or are they excluded. This discount. Thank you very much.
Okay, So contagious Uh huh.
Well I mentioned that Eagle bulk so what they said that digital we're going to work. So it's only nine inches.
Well they eat out even though you got the introduction I bundle and the political woman. She wants Equatorial Guinea a lot. Okay. It goes to California. So no go no looking though can you tell me that it's good to hear your question doesn't do they go from here.
Well, no because you're not able to hold that she'd like to hear your what's your dock worker isn't going to go. So it gives them a recipe that look like.
So David I mean, how did it go to the woman well then talk on 100 houses yet when they don't use or what exactly was it so it's a little bit and go that they got to go to dollar.
How can you go with that I'd be the holiday you got you got to know so that's what I mean look what you might do the show is a dark they called out which is a well that's what I'd said one go to South Africa, there probably isn't one that can go to <unk>, where that you'd have to do that but won't really change I wonder how it plays out.
No, but you know what you should think about it when we look at the situation. Each channel has its benefits there's advantages to each of the channels and all the advertising, but we have done a lot recently weve actually spent a lot of time and effort in analyzing very very carefully how to maximize the impact from the advertising. So as a result, we've been able to achieve relatively lower cost are a key part of this is based on our analysis our ability to in fact through advertising attract 100 customers, which then may in fact lead to another additional 30 to 40 customers REO referrals or other means and as a result, this will keep our cost.
Under 200 that may be per customer.
So ultimately when we look at the situation, yes. The advertising is definitely good yes, it's done very well for us, but we're not going to overly reliant on this or any other channels, we're going to continue to analyze and work hard on developing our diversified channels, including advertising and bootie advertising also how it enables us to create from the advertising our customers, which then creates additional customers.
So ultimately it depends on the quarter it depends on what's occurring in the market, we're going to adjust our approach accordingly, but again, if there's two things I want to emphasize it's one.
We want to have diversified sources, we definitely don't want to rely on any one or two single channels and second we just as importantly.
This needs to be a long term benefit we need to have additional advantages, resulting from each dollar that we spend on advertising that will give us a long term ability to acquire even more customers.
I've got one huge assure you got any Doug Hi, John John Fischer woman is I know him and she's yesterday.
Yeah sure.
You didn't want to show a woman die. They do you know what magnitude or social equating to a kind of found a switch out no downturn dates or anything you could tell you. When you go switch off and on the mail.
Right. That's what you should do this all male meal try to try to understand not taken up when they use it.
You know the down to the foolish Tricia sure sure sure way should I really don't know what you're talking about future effective NPR shortly.
In fact, where Ah different first there was in the first quarter the promotional events, which occurred a where unfortunately, we did I capture enough or the numbers effectively I'm. So actually after accounting that ended yes. The effective HP are a would probably be a bit lower now the second the Ida lawyer, just read is that for certain customers in the past, where we've offered to reduce expenses, a PR fees or interest rate period, we probably did not account for it as accurately as we could and so has a we had to make an adjustment for that as well.
Hey, guys tend to concentrate on say a kind of a tissue, calling you comb through without any go what's your thoughts on how does your cohort of students <unk> onshore some amazing okay. Since asking could he will surely be a module to enable you to be a a CCN out and they go teaching tigo team. While there is social just want to follow up on a four because some of your class online or maybe offer them. The first product or would it be any different as compared to <unk> for the for those customers that we acquired from traditional channels in terms of a interest rate on ticket size and.
There are no further questions at this time, thank you, ladies and gentlemen that does conclude the conference call for today. Thank you for participating you may all disconnect.
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