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Edited Transcript of JT.N earnings conference call or presentation 26-Aug-19 12:00pm GMT

Q2 2019 Jianpu Technology Inc Earnings Call

Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Jianpu Technology Inc earnings conference call or presentation Monday, August 26, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daqing Ye

Jianpu Technology Inc. - Co-Founder, Chairman & CEO

* Yilü Chen

Jianpu Technology Inc. - CFO & Director

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Conference Call Participants

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* John Cai

Morgan Stanley, Research Division - Research Associate

* Julie Hou

UBS Investment Bank, Research Division - Associate Director & Research Analyst

* Zhi Yi Chen

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello and welcome to Jianpu Technology Inc.'s Second Quarter 2019 Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to [Luting Liu] Jianpu's Investor Relations. Please go ahead.

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Unidentified Company Representative, [2]

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Thank you, operator. Please note that discussion today will contain forward-looking statements relating to future performance of the company. These statements are within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Jianpu's business and financial results is included in certain filings of the company with the Securities and Exchange Commission.

The company does not undertake any obligations to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see our second quarter 2019 earnings press released earlier -- issued earlier today via wire services and also posted in the Investor Relations section of our website. As a reminder, this conference is being recorded. A live webcast and the replay of this conference call will be available on the Jianpu website at ir.jianpu.ai. Joining us today on the call from Jianpu's senior management are Mr. David Ye, Co-Founder, Chairman and Chief Executive Officer; and Mr. Oscar Chen, Chief Financial Officer. I will now turn the call over to Mr. Ye, who will provide an overview of the company as well as the performance highlights of the second quarter. Mr. Chen will then provide details of the company's financial results and business outlook before opening the call for your questions. Mr. Ye, Please go ahead.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [3]

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Thank you, [Luting]. Hello, everyone, and thank you for joining us on our call today. As we continue to accomplish our mission to become everyone's financial partner. We feel positively about the long-term outlook of the digital transformation of China's retail financial services industry. To balance this perspective over the short and medium term, China's retail financial services industry is currently being shaped by a mix of uncertain macroeconomic environment, tightening regulatory policies, the rapid pace of digitalization in the society and an increasing demand for access to financial products and services by consumers and SMEs. As the largest independent open platform for discovery and recommendation of financial products in China, Jianpu's mission is to become everyone's financial partner by empowering users to make smarter and better choices and enabling financial institutions to make better digital marketing, Big Data and risk management and integrated solutions. This is very important as Jianpu's open platform model is well positioned to capture this macro trend and secure the growth to serve both consumers, SMEs and financial service providers who provide a full spectrum of our financial products and services. To give the market a sense of what's happening in China's retail financial services industry, we would like to provide a macro view of what we are seeing and why Jianpu's businesses are at the forefront of driving transformation to better serve Chinese consumers and SMEs.

China's economy grew at a lower pace amidst uncertain global macro environmental factors. From the supply side of the retail financial services sector, liquidity remains weak for consumers and SMEs. As financial institutions, tightening their credit policies and risk management practices, access to financial products and services is getting harder for consumers and SMEs in some credit segments, demographic and geographical areas.

For the first half of this year, some of the 20 top -- some of the 20 top credit card issuers tightened their credit policy, slowed down acquiring new customers or only extend credit to existing customers and organic customers. As peer-to-peer lenders follow regulatory guidance switching from retail individual funding to wholesale institutional investment funding, top P2P lenders slowed down new acquisition and market expansion.

For the mortgage sector, Tier 1 cities such as Shenzhen, Shanghai, we have seen mortgage rates have declined recently. However, most of the Tier 2 cities such as Suzhou, Dalian Hangzhou, Wuhan, Changsha, mortgage rates are increasing. We have seen personal mortgage applications not growing as fast as before. It is more difficult for potential homeowners to get mortgage approved by banks in some cities.

On the other hand, demand from consumers and SMEs remains strong in this uncertain economic environment. Total number of credit cards and bank cards issued as of the end of Q1 reached 690 million, and the average number of credit card reached 0.49, and we expect this trend to continue in the future. We do see rising demand in SME financing, auto financing, wealth management and insurance sectors. The government authorities are tightening grip in some financial regulations but relaxing other sector regulations. Since the government announced and clarified P2P rules and guidance last quarter, the P2P industry consolidation has been intensified and will be expedited in the next 2 quarters. By the end of July, number of P2P platform has concentrated down to 997 platforms. Top P2P lenders with diversified funding sources, supported by wholesale institutional investors will be less impacted and will recover their businesses rapidly. On the other side of the regulatory environment, the government is pushing for interest rate liberalization, increasing liquidity to small- and medium-sized enterprises.

We also have seen government increasing liquidity to SME consumers and also want to support the real economy, encouraging competition among financial institutions. Also there are more loosening rules and regulations for foreign investors to set up lending, payment, insurance and other domestic financial service entities. And notably, recent launch of LPR, loan prime rate by China's Central Bank will enable lenders to set interest rates more freely. It is a very good move expected to bring borrowing costs lower at a time when the economy needs a boost.

Most recently, the central government promulgated new guidance to nurture digital platform economy in China, highlighting the important role of digital platform in stimulating economic growth.

In this uncertain period, not all financial institutions share the same view in terms of risks or have similar risk appetite. To mitigate risk and uncertainty in the short term and capture the industrial growth in the medium-to-long run, we are seeing increased investments and spending by banks license the financial service providers and fintech players who are relying on artificial intelligence, data science, digital, cloud computing to enhance the growth and improve risk management capabilities of the Retail Banking businesses.

Last year, large commercial banks increased the investments in technology to RMB 112 billion of which CNY 42 billion was invested in fintech applications. Long-term prospects for industry remain extremely promising as JT is uniquely positioned, supported by technology, data assets and FSP network to capturing on the growth of the digital financial service industry.

Let's move into our quarterly performance summary. We saw strong credit card revenue growth of 25% year-over-year outpacing peers, even though the credit card market was relatively slower first half of this year compared to the second half of 2018. Credit card awarding from both recommendation services and advertising reached approximately 1.9 million in Q2. This growth reaffirms our capabilities to capture the evolving dynamics of the market.

As we look into the drivers behind the growth in the credit card recommendation businesses from the bank, the credit card issuer standpoint, the number of bank partnership increased to 28 in Q2 from 25 in Q1. We are now partnering with 16 out of 18 largest state-owned banks and joint stock commercial banks nationwide in total. The average number of cards issued on Jianpu's platform per month reached over 600,000. Currently more than 40% of the credit card awarding are generated through social media, MCN or multichannel network marketing initiatives, leveraging short video content reaching mini program and other strategic partners with technology-driven financial products such as China UnionPay mobile QuickPass. We have seen more and more users coming from second, tertiary, fourth-tier or less affluent cities and new urbanizing areas. The economy of those lower tier or less affluent cities actually grow faster than the major metro cities. Consumptions are stronger. From credit risk perspective, less affluent cities have more affordable houses. Consumer finance burden is lower -- consumers' ability of servicing their debt are much better compared to those consumers living in major metro cities. Financial institutions such as credit card issuers actually are capturing this secular trend by providing innovative digital banking products to less affluent cities and younger Generation Y and Generation Z.

Another big secular trend in China's retail financial service sector is the adoption of Big Data, artificial intelligence, cloud computing and digital and in the future, 5G will transform how financial service providers are communicating and marketing to their consumers, managing risks and servicing them. We have been investing in those areas in the last couple of years and have seen strong growth into the second quarter, continuing to deliver threefold digit year-over-year growth.

We expect that the growth momentum will continue in the future. SkyKey or [TMG] our branded Big Data and risk management service is deployed on a software-as-a-service model, tailored for demand across different type of financial service provider with a right range of need from credit decisioning, fraud detection, risk modeling and other risk management decisioning. At present, there are more than 1,000 paying financial service providers within our SkyKey platform. FSPs can adopt SkyKey for a solution or choose one of our several specific module to meet their sales and marketing risk management and decisioning needs. Given the strong demand for our services, we have enjoyed a high growth, we have seen the ramping up of average spending per financial institution. We have also seen high retention rate among financial institutions.

At the same time, we have activity developed a more diversified data ecosystem through the exploration of deep financial and nonfinancial data analytics, continuously optimizing our proprietary technology and further improving our risk management product and better improving credit risk models.

As of current SkyKey, we have just achieved ISO 27001 certification and CMMI 3 certification validating our commitment to implementing effective security to protect consumers and partner information and data. We are dedicated to helping customers mitigating risk while providing industry-leading product and services to better serve the evolving and challenging needs in this environment.

Before we go into the financials, we just want to continue our update following the [Sanyo] event and the subsequent mobile application relaunch. As of the end of last week, our mobile apps are available on all App Store now. We took the time to conduct a comprehensive internal review and continuously drive certain self-imposed improvement internal processes regarding to FSP onboarding procedures and ongoing monitoring and supervision. We have implemented the necessary risk control to better protect the users from participating in products that are out of the scope in terms of industry standard. Being the leading player in this market, we have also been invited by the regulators to participate in developing industry standards and promoting industry best practice, including defining guidance for digital financial platform, corporate responsibility and products standard as well as consumer rights protection.

However, the event did have a big impact last quarter due to that our mobile app were unavailable for a long period of time. Our loan recommendation businesses was handicapped with disappointing results. That may also impact the coming quarter given the later-than-expected relaunching schedule as well as time for us to recover before we can fully optimize our scale and efficiency.

For the second half of 2019, we will continue investing in our capabilities and infrastructure of technology, data science, AI capabilities and our people to better serve banks and other financial service providers. We will focus on our balanced operational strategy, striking to achieve better operating efficiency or smart scale, including optimizing user acquisition strategy, deep cultivating relationship with banks and other financial service provider as well as strengthen our organization. As we shared in previous earnings call, we are committed in exploring the new initiatives in terms of our financial product category expansion and global opportunities, leveraging our strong technological capabilities and strong relationship with financial service providers. We are exploring and testing market segments related to wealth management, financial content and tools. Recently, we acquired a Hong Kong-based law and credit card recommendation platform. We plan to use the Hong Kong platform as a starting point to explore cross-border opportunities. We can share information about our cross border plans in the next 1 to 2 quarters.

There's a huge untapped potential in China's retail financial service industry as artificial intelligence, data science, cloud computing, digital and 5 Generation of telecommunication, transforming the financial service industry and potentially changing hundreds of millions of people's lives in China and worldwide. We strongly believe that Jianpu is well positioned and remains a leader and innovator in this industry with strong technical capabilities, massive [warding] of valuable data and a unique open platform model, connecting over 100 million consumers and 2,000 financial institutions. Our team maintain a positive view towards the end of the year and in the medium to long run.

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

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [4]

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Thank you, David, and hello, everyone. Our results in the second quarter fairly reflect the challenges and uncertainties we're facing as well as our efforts and the performance. The performance varies among business lines impacted by the voluntary suspension of app downloads since mid-March, our loan recommendation suffered a significant year-over-year decrease in the second quarter. However, our credit card recommendation and the Big Data and risk management services were less impacted. We are pleased that the credit card business remained strong as we keep up with optimization of our product-offering mix for current conditions. We are also confident that our Big Data and the risk management services are in strong demand by the banks and other financial service providers.

As discussed in the last earnings conference call and as a result of our voluntary suspension of the mobile app downloads for our internal review since mid-March, we expected a negative impact on our financial results.

For the second quarter we reported total revenues of approximately RMB 362 million, a decrease of 26% year-over-year. And the non-GAAP adjusted net loss of approximately RMB 57 million as compared to an adjusted net loss of RMB 29 million in the year-ago period.

Total recommendation services revenues decreased by 32% year-over-year to RMB 300 million in the second quarter due to a 65% year-over-year decrease in loan recommendation services offset by a 32% year-over-year increase in credit card recommendation revenues. Combining the credit card business from both recommendation and services and advertising, we recorded credit card volume of approximately 1.9 million in the second quarter of 2019, representing a year-over-year increase of approximately 19%. The average fee per credit card increased to RMB 107 from RMB 99 in the second quarter of 2018, as a result, revenue for credit cards for recommendation and advertising services in the second quarter increased by 25% to RMB 202 million from RMB 162 million in the year-ago period.

Among the revenues generated from advertising and marketing services and other services, our Big Data and risk management services remained in strong demand among financial service providers, growing 139% year-over-year to RMB 50 million as this segment of customer seek out for our Big Data and risk management services.

In the past tough quarter given the weak sentiment of top line, which were negatively impacted by the voluntary suspension of app downloads and other industry dynamics, we conducted a couple of adjustments aiming to maintain our operational efficiency, including organizational change, cutting off low efficiency business and et cetera. However, such adjustment has certain lagging effect, the benefit of which may kick in, in later quarters. At the same time, we continued our commitments in exploring new initiatives as David mentioned earlier, which resulted in some upfront investment in people and technology. As such, our efficiency level measured by various expensive line items as a percentage of revenue were not performing well in the second quarter 2019.

With respect to maintaining a balanced strategy with profitability and margins in mind, gross margin increased to 93% in the second quarter of 2019. Sales and marketing expenses, excluding share-based compensation as a percentage of revenues was 87% in the second quarter of 2019 compared with 85% in the year-ago period.

Our R&D expenses, excluding share-based compensation increased by 46% year-over-year to RMB 68 million. R&D expenses as a percentage of revenue rose to 19%.

Our G&A expenses, excluding share-based compensation increased to RMB 20 million in the second quarter from RMB 15 million in the same period of 2018. G&A expenses as a percentage of revenue rose to 6%. As a result, our non-GAAP adjusted net loss, which excludes share-based compensation was RMB 57 million in the second quarter of 2019 and the net loss was RMB 85 million. At the same time, non-GAAP adjusted EBITDA was a loss of RMB 51 million compared to a loss of RMB 36 million in the year-ago period.

As of June 30, 2019, we maintained a strong balance sheet and cash position with cash and cash equivalents, restricted time deposits and short-term investments of approximately RMB 1.2 billion and the working capital of approximately RMB 1.2 billion.

A quick review of our share repurchase program. Starting from August 2018, our board approved a share repurchase program with total authorization of USD 30 million. As of August 25, 2019, the company has repurchased approximately USD 29.7 million of shares under this program.

And last for the guidance. The company anticipates the external environment to remain uncertain and challenged in the third quarter, although our app has been fully relaunched and available in all app stores. The impact from the voluntary suspension may also have some lagging effect into the coming quarter. Based on the company's current estimates, we expect our total revenues for the third quarter of 2019 to be approximately RMB 300 million to RMB 320 million. With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please kindly go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from John Cai with Morgan Stanley.

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John Cai, Morgan Stanley, Research Division - Research Associate [2]

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So I have 3 questions. The first one is on the guidance. I think this revenue guidance seems to imply a "decline." So just wonder what sort of external environment uncertainty that would lead to that? Do we see weakening lending activities from financial institutions and certain lenders. But it seems that you already relaunched the app, you should expect certain increase on a sequential basis in terms of the revenue? And my second question is about the second quarter sales and marketing. I think most of the second quarter we -- our app is not available. Just wonder why it is still over CNY 300 million sales and marketing expense here? And the ROI obviously deteriorated. Can management share more colors about the portion of organic users and customer acquisition costs and the conversion rates and how do we see that in second half? The final question is about cash. It seems we have some Q-on-Q decline on cash and also David mentioned some investments just wonder -- and based on the revenue, it seems the third quarter could also be a challenging quarter. So just wonder how we see the cash position going forward?

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [3]

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Okay. Thank you, John. I will take the -- I think -- to answer your questions first. So yes. I think, yes, regarding the guidance with regards to third quarter, it is still a bit, I think, disappointing, but we do see some uncertainties and challenges in terms of the external environment. So as we mentioned in our last conference call, we expected that the second quarter given the -- our application -- our mobile apps were not online, so we would suffer a decrease in terms of the top line. Entering to the -- but we also mentioned that entering into the third quarter when we got our apps relaunched, we still need to spend quite some effort to optimize our acquisition strategy, our operating strategy to achieve balance between the scale and efficiency. So firstly, I think -- I think I'd like to give an update on our app relaunch. The app relaunch is almost one month behind our schedule, so we got our apps relaunched in August, in May, in mainstream medias like Tencent, Baidu and [Total] in June and the OEM app stores through July to August.

So firstly, I think the relaunch schedule is a bit -- the relaunching is a bit behind our schedule. So that may have some impact on the third quarter performances. And also I think in terms of the optimization of our acquisition and operational strategy, we are seeing the external market challenges and uncertainties. So that translates into -- even though we want to burn some cash to scale up our business, but it may not be justifiable. So we still want to keep a balance between the scale and efficiencies.

And the in addition, I think the challenges and uncertainties is more at the microeconomic and regulatory environments. So in this -- with this observation, so we will have to [lean] on more efficiency than scale in the second half of this year. I think David already talked about some challenges we are seeing outside -- we are seeing in market -- into the market, including tightening of credit policy from the financial service providers and the overall liquidity. I think the social liquidity level is slow than we -- the growth is slow than we expected. So I think this is what impacts us in the short term, particularly in the third quarter, but we are more optimistic in the medium- to long-run given our relevant business model and the robust technology infrastructure. Yes. I think...

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [4]

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John, this is David. I would like to answer your first -- third question just to add a little bit of what Oscar has said. So cash position we have about RMB 1.2 billion, that's roughly the number. We did lost -- we had lost quarter, right. We burned around RMB 56 million last quarter, right. That's why our strategy for Q3 is smart growth, smart scale, right. I mean if we look at the 3 segments, the Big Data, risk management we did have a strong growth. However, last segment only accounted for roughly 20% of the revenue, right?

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [5]

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15%.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [6]

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15% to 20%. So we have high double-digit growth that doesn't add much. Regarding our business, we believe it's going to have a good Q3, however, we do see some summer effect, little bit of summer flow for one of the 2 big banks. So the challenge of course last quarter was loan recommendation businesses. We did not achieve the operating efficiency we would like to. We lost the money mostly in that segment. That's why in Q3, our strategy is really optimizing of our efficiencies. Just think we have a car, we shut down for a couple of months, we will start the engine, right. We need to achieve the optimal fuel efficiencies, right. We're not going to try to get the revenue scale and losing money. So that's why as management, we made a decision. We want to further improve the operating efficiency in the loan recommendation businesses. We lost some revenue, but, of course, we're going to reduce the net income kind of impact, yes. So that's the add-on for question 1 and 3. Did I answer your question 3 as well, right? So we want to answer second question again?

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John Cai, Morgan Stanley, Research Division - Research Associate [7]

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Yes. I have questions about ROI. I think the second quarter seems -- the sales and marketing is still big given that our app is not available for the majority of the quarter. So just wonder why is that in terms of ROI organic traffics and conversion rates, customer acquisition costs et cetera and also David mentioned about efficiency improvement. Just wonder how we see the ROI in the second half?

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [8]

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Yes, thank you, John. I think, to your question, although our apps were not available for downloads during the second quarter, but you see we still grow our credit card business relatively nicely in the second quarter. So for this business line, firstly, I think there were also some impact from the [sale]. So in that sense, we got a quick relaunch and recover of the banks' relationships to get the credit card products back online. In that sense, we may not be able to get the best price. Although you're seeing a year-over-year unit price increase, but we don't think it's a best price we can get for now, particularly under the current environment.

So for credit card business, I think the ROI is to quickly recover this business, I think the ROI is a bit lower than we expected. For the loan recommendation, of course, your guess is correct. We have repeat users, we have our -- we still -- although the app is not online, but we still have the users who have already had our app book and submit the loan applications through our platform. Firstly, the repeat user because of the [final] the app is not available, so I don't think the data can tell -- the data itself can tell the story. We have the repeat users, we have relatively higher ROIs from the loan recommendation, but again, to keep the scale as it is, we still need to spend some marketing dollars to do the user acquisition through the mobile app, through the PC channels to keep the user activities and also to keep the scale up our business. So regarding the percentage of re-traffic, I think it's higher than any quarter before. But I don't think the number here is relevant to telling the stories of the future and also for the conversion rates, we are seeing the conversion rates from the active users to the number of applications that's a bit lower than the previous quarters. Because app is not online, and we also after sale we also put on more stringent financial service provider onboarding rules. This makes our loan product less than before. So in that sense, if you look into the conversion rate of our business, it's I think it's 2 to 3 percentage points lower than the previous quarter.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [9]

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Yes. So John, I want to add just one point. The sales and the marketing costs, including traffic acquisition costs, tax as well as staff human costs related to the sales and marketing function. Keep in mind, we do have the fixed costs from Q2 to Q1, I mean relatively, right. If you look at our tax, traffic acquisition costs divided by sales and marketing, we do see some efficiency increase optimized as well as, of course, the efficiency like slowdown due to the delisting of the app, I just want to share with you one number, our repeat returning customer, we have seen the number slightly increase in certain segments. So that's why you don't want to look at number on average in terms the ROI. I mean we do see that there is some decreasing factor as well as an increasing factor.

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [10]

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And also to your third question about the cash balance decrease, I think a couple of ways we deployed the cash in the last 2 quarters. Firstly, I think we -- I think the usage included the share repurchase. And also a couple of investments we conducted in the last 2 quarters. And of course, as David mentioned, the operation of cash flow is outflow given our loss made in the second quarter. Yes. I think that John, I hope these answers your 3 questions.

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Operator [11]

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The next question today comes from Wendy Chen with Goldman Sachs.

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Zhi Yi Chen, Goldman Sachs Group Inc., Research Division - Research Analyst [12]

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I actually got 3 questions here. First on our third quarter guidance. Wondering that how do we see the different contribution on the third quarter for loan and credit card? Because in the second quarter, we actually see credit card business has still recorded some year-on-year growth, and of course, loan business got more impacted by the [shehui] incident. So just wondering how is our review for the contribution in the third quarter? Second question is about our loan recommendation price. We noticed that in the second quarter also, our loan application number got impacted a lot by the download suspension, but we still recorded quite valid growth for loan CPA. So just wondering for into the second half with the macro headwinds we are seeing and probably need to recover from the app suspension whether we see this loan price increasing trend change in the second half. And third question probably more on management view for the time line like when do we see the full recovery of our business especially in the loan application business post this app download suspension?

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [13]

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Okay. Thank you, Wendy for your questions. So, yes, let me take -- let me answer the question, yes. Firstly, I think about the loan application unit price. Yes, we see a healthy rise of the loan application CPA. So the reason -- the reason is mainly we are seeing as we discussed in earlier this year, so we are seeing the loan products available in the market has more -- has larger ticket size, longer duration, including the loan product offered by the banks, consumer finance companies and also the P2P companies, long-existing model micro-lending companies across the board. We are seeing larger ticket size, longer duration. So this is why we are happy to see a price increase starting from the first quarter this year and it will continue into the second quarter. So in the second quarter, if you want a breakdown of the loan application volume, so we're seeing over 50% of our loan application volume with a ticket size over RMB 10,000 and over 30% of the loan application volume with a ticket size over RMB 50,000. And the remaining are still the loan size below CNY 10 million. So through the breakdown of the loan size of the applications, we hope that our platform you're seeing a natural shifting towards the larger-ticket size and the longer duration. This is why the CPA, the unit price increase. Third, we do believe that this price trend will continue into the second half of this year. And then, back to your question regarding the contribution of the -- between the various business lines. So I think we're seeing a challenging uncertain external environment. So in that stance, we are more willing to provide relatively conservative guidance in this regard. So for credit cards -- for credit card business, we would estimate volume on par compared to the second quarter this year. So probably you may ask why is that? Because entering into the second quarter, we observed a so-called summer slowdown in the credit card business. So in terms of the delinquency rate of the credit card, I think from the public news or the public report published by the Central Bank, it's not worse. It's almost -- the delinquency rate are also become healthier, at least in the first quarter this year, but different bank has different strategies. Among the 28 credit card-issuing banks, we are working with, we are seeing most of them still grow their credit card business. But we also see a number of the credit card issuers, they have more conservative strategy and enter into the second half they may pull back the scale of their credit card use acquisition. So this is why we would estimate the credit card volume will be on par sequentially compared to the second quarter.

So for the Big Data and the risk management services, I think we will see continued growth, although it's still a small part of our business, but we would like to see sequential growth entering into the third quarter. The most uncertain part is the loan recommendation business. So we just want to put a very conservative number here. So we see the uncertainties, we need to deal with uncertainties. So from a guidance perspective, we want to be as conservative as we can. So that's pretty much the breakdown we estimated for the third quarter guidance.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [14]

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Wendy, this is David. So in my closing remark, our team, we definitely maintain a positive view towards the end of the year and in the medium-to-long run. We started the business almost 7.5 years ago. If you're using 1 or 2 words, kind of characterize the growth of the industry or the company since we had the platform, in some degree will represent the growth of the whole, either we call it fintech sector or the digital retail financial sector in China. One or 2 words, I would want to characterize spiral rise, spiral growth. So means -- and we actually in the last 2 quarters, last couple of years, we have seen -- we are actually in, I would say, we are in intersection of 2 spiral rise or decline. I mean, of course, one of the spiral are from the consumer driven, right, the digitalization and also the big secular trend of leveraging data and AI, digital transformation by more and more financial institutions to better serve their customer to manage digital marketing risk management better. That's a positive words, I call like a spiral. Of course, on the flip side of the coin, the other spiral, I mean, we have seen the macroeconomy with uncertain like it will be -- maybe uncertain for the next quarter. Hopefully, not longer. And we've seen tightened regulation. In my overview, we have talked about some selective -- like regulation side, right. Of course, there are some positive sides. So to be honest, it's hard for us to give very accurate projection given the spiral rise or spiral decline or sometimes both are there. But we are on the wrong side of the spiral, we [can] see it. Oscar, myself and the team, we always give a very conservative guidance. We have maintained our policy and we maintain our appetite. So that's our appetite, we'd rather provide conservative guidance. And if you look at our data in the last 5 or 6 years, which have meaningful quarterly seasonality data, I can share with you in 2017, '18, even 2015 or '16, in some good years, in Q4, we can do around 35%, 38%. In one year, we did about 39% of the businesses. That's a seasonality. I mean we are not saying this seasonality will show up, will appear again this year, we'd hope so. But we'd rather provide conservative guidance and as you may know, the national holiday is coming in about 5 or 6 weeks, and we would definitely hope things will be better in Q4. But, of course, we haven't factored in those potential upside trends yet. So that's tough. This is a very tough quarter to give any guidance. Frankly speaking, I mean, we have been building this business in the last 7, 8 years. I was in the business world for over close to 2 decades, right. I have seen 2 economic crisis in U.S. The Internet bubble and the financial crisis in New York City. And this time, it's different. But Oscar and I and our team would rather be conservative.

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [15]

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Yes, I think, Wendy, regarding the seasonality, I will also provide a couple of data. Definitely, this third quarter we provided a lower guidance, but normally, if we look into the historical data, normally because of the seasonality from third quarter to fourth quarter, there will be a sequential growth naturally because of the more borrowers' activities and the financial service providers' KPI-driven initiatives enter into the fourth quarter. So in the coming years, we can grow the business sequentially by around 30%. But the highest year, we also grow the business by 50%, 60% quarter-over-quarter. So I think we hope for the best, but so far, because of the uncertainties and the challenges we're observing, so we may not be able to give a very clear time line in terms of so-called full recovery.

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Operator [16]

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(Operator Instructions) Our next question today comes from George [Cai] with JPMorgan.

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Unidentified Analyst, [17]

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George from JPMorgan. So I have 2 questions. My first one is on the split of power institutions. Could you share with us the loan application volume in terms of the financial institutions, namely banks, consumer finance companies or some of the P2Ps and how does the trend compare to last quarter? And my second question will be on our profitability. So I think the last 2 quarters we do register some of the profits, but in this quarter, we turn into loss again. So how do we think about our profitability and earnings in the second half and in 2020?

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [18]

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Okay. Thank you, George. So quick answer to your question. Regarding the loan application volume, I think during the second quarter, I don't think because of the volume decreased a lot year-over-year and quarter-over-quarter, I don't think this may be meaningful to have a lot of implication to predict the future. But anyway, the rough breakdown is that we -- the loan recommendation revenue only accounts for less than 1/3. I think 30% of the total revenue. So among that, I think the majority around 50% to 60% contributed by the licensed players, that's the banks and the consumer managed companies. And the remaining 40% contributed by the P2P and the loan assistance, [2 tier loans]. So that -- but if you're looking -- look through the [2 tier loan] business models, the funding behind that is also the licensed institutional funding. But again, I think it's just the number for the past 2 quarters.

And your second question is about the profitability, okay. Yes, thank you. We always keep efficiency and profitability in our mind. I think particularly under the current market environment, I think efficiency matters more to us. This is why we conducted some in "various comments" that smart growth or smart scale enter into the second half of this year. So this means we prioritize efficiency and probability over the scale considering the uncertainties and the challenges we are facing in the current market environment. But if you look into our business model, particularly the profitable quarter in the fourth quarter last year and the first quarter this year, you may notice that if you want to achieve profitability, both scale and efficiency matters. So given the -- I think -- I hope you can understand what I'm saying here. So now we will focus on efficiency over the scale, but to achieve the full profitability, we also need to scale, so yes.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [19]

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Yes. Profitability is not a goal. It's a natural result as we scale our platform. If we maintain the operating efficiency, profitability will come as a natural result. So that's simple. We maintain a high margin rate, right? Fixed costs are here. So you have seen the profitability we can easily achieve that as -- once we scale and grow again and also smartly, of course.

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Operator [20]

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The next question today comes from Julie Hou with UBS.

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Julie Hou, UBS Investment Bank, Research Division - Associate Director & Research Analyst [21]

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I have one question. You mentioned you took some initiative in last quarter such as organization change and cut low efficiency department. Could you elaborate more on this?

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Yilü Chen, Jianpu Technology Inc. - CFO & Director [22]

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Yes, sure. So the organizational change here means -- firstly, we formally deployed the BU structure into our business. So which will -- we can have a more clearer goal for the team to achieve for different business lines. So because behind the different business lines, the logic, the mindset, the skill set, are quite different. I think the BU structure, maybe will support our business down the road for the next 3 to 5 years. And also because of the new initiative in terms of category expansion, we discussed in earlier this year, so we shuffled our internal resources a bit. So for example, like loan recommendation given that we are -- the scale is not there, so we may have redundancy in terms of the manpower, so we -- but R&D guys are very valuable in this market. So given we also have some new project, new initiatives, so we reallocated the R&D resources among the various business lines. I think we do want to -- although we will keep the efficiency as much as we can, but we don't want to lose the future opportunities. So we also want to invest in people and technology, but now the better way is to organize and reshuffle internally to get more results to the future growth. So this is how we mentioned -- why we thought of organizational change. And also about the cutting of low efficiency business, so as you're aware, as you may notice that, although our sales and marketing -- advertising, marketing and other services, this revenue line grow a bit, but the major contribution was from the Big Data and risk management services. And our advertising, [pure] advertising business was slowed down year-over-year and quarter-over-quarter. So I think as an analyst, you also observed the overall on advertising, the weak sentiment of the advertising market. So in that sense, we also controlled the pace, our pace into this market -- into this business. So this business particularly in this market environment, the ROI is not that good. So we cut off the -- we slowed down the pace and cut off the size of this business a bit. So I hope this answers your questions.

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Operator [23]

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This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

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Unidentified Company Representative, [24]

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Thank you once again for joining us today. If you have any further questions, please contact us at ir@rong360.com or TPG Investor Relations at jianpu@tpg-ir.com. Thank you for your attention and we hope you have a wonderful day.

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Daqing Ye, Jianpu Technology Inc. - Co-Founder, Chairman & CEO [25]

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Thank you.

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Operator [26]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.