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Edited Transcript of XRF.N earnings conference call or presentation 16-Dec-19 1:00pm GMT

Q3 2019 China Rapid Finance Ltd Earnings Call

SHANGHAI Jan 10, 2020 (Thomson StreetEvents) -- Edited Transcript of China Rapid Finance Ltd earnings conference call or presentation Monday, December 16, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Steven Foo

China Rapid Finance Limited - CFO & Executive Director

* Zhengyu Wang

China Rapid Finance Limited - Founder, Chairman & CEO

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Presentation

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Operator [1]

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Hello, ladies and gentlemen. Thank you for standing by, and welcome to China Rapid Finance's 9 Months 2019 Earnings Conference Call. (Operator Instructions) Please note that today's conference call is being recorded. I will now turn the call over to the host for today's conference, Ms. [Cindy Gu]. Cindy, you may begin.

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Unidentified Company Representative, [2]

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Hello, everyone. Thank you all for joining our conference call. The company's earnings press release was distributed earlier today and is available on our IR website at ir.crfchina.com.

Joining me today to discuss our results are Dr. Zane Wang, the Chairman and CEO, and Mr. Steven Foo, our Chief Financial Officer. Management will review the operating and financial highlights of first half and first 9 months of 2019, and then we will open up the line for a Q&A session.

Before we get started, I would like to remind you that our remarks today will include forward-looking statements. Those statements are prospective in nature and are subject to risks and uncertainties that may cause actual results to differ materially and adversely from the company's current expectations.

Further information regarding these and other risks is included in our reports filed with or furnished to the SEC. All forward-looking statements that we make on this call speak only as of the day hereof and subject to change at any time. We undertake no duty to update these forward-looking statements.

I will now turn the call over to our Chairman and CEO, Dr. Zane Wang. Zane, please go ahead.

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Zhengyu Wang, China Rapid Finance Limited - Founder, Chairman & CEO [3]

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Hello, everyone, and thank you for joining our first half and 9 months 2019 earnings conference call today. These results reflect both the regulatory changes impacting our industry and the proactive approach we have taken to transition into new business directions.

As we have previously disclosed, due to regulatory changes, we were required to exit the lending marketplace and lending platform business in April, and we are transitioning to facilitating lending capital from financial institutions. We immediately began a cost-cutting program at the same time to maintaining our core competitive edge to serve financial institutions. These efforts helped us to have improved our cash flow in the first 6 and 9 months of 2019.

In the marketplace, the lending platforms are fading away. The market demand for consumer credit and the small business loans are even stronger. We are transitioning into a new business direction, which can be characterized by 3 key elements. First, we will keep serving our existing investors on our platform.

In the reporting period, we saw our borrowers' overall delinquent rate remain relatively stable, which demonstrates the validity of our predictive selection technology and the automated decisioning technology. As the portfolio went down, its credit quality typically will be deteriorated as the higher-quality borrowers pay off their loans that delinquent borrowers remain in the portfolio. In order to exit the lending marketplace lending platform in an orderly manner, we keep making connections from the existing borrowers to pay back the loans and keep serving the existing investors who have been receiving monthly payments from borrowers.

The recent regulatory policy changes created new challenges to our collection efforts, and we are working with the multiple collection partners to enhance our ability to collect the borrowers' repayments. We are also working with the business partners to give existing investors choice, to sell their loans to potential interested parties in exchange for liquidity or to participate in a warrant structure that we announced in June. Currently, several institutional parties have expressed strong interest in working with the company on purchasing existing loans.

Second, we will work with our data partners and the channel partners under the new regulatory framework, allowing our core technology to facilitate financial institutions' lending capital to serve the unmet financial need of our customers. We will generate revenue and earnings from service in fees and the participations in projected companies that targeted specific customer segments such as SME loans, online consumption loans and the large ticket purchase loans. The servicing fees are expected to be derived from providing technology and decisioning services to institutional lending capital providers.

Our competitive edge resides on our existing customer base, proven technology, licensed entities and established operation framework. Decision technology is in the DNA of the company. As of today, some Tier 1 and Tier 2 banks have been using our decision technology for more than a decade. We are actively exploring new business areas and opportunities, leveraging our proprietary technology and the 18 years of experience, establishing partnerships and facilitating financial institutions' lending capital to serve the unmet consumer financial needs in emerging markets.

Our proprietary technology creates the significant advantage of our highly scalable borrowing screening mechanism for these underserved quality borrowers. Through our invested borrower base, we demonstrated good credit behavior. We can effectively counter financial institutions to offer them larger, longer-term loans. In this way, we can continue to engage with these high-quality borrowers with significant lifetime customer value because it is cost prohibitive for financial service institutions to acquire and serve these quality borrowers directly.

Third, we are developing strategic alternatives. We are currently engaged -- engaging in active discussions with the major financial institutions that have expressed a strong interest in working with us for the market opportunities, including capitalizing our licensed entities, which include the licenses for micro-credit, loan-guaranteed leasing and investment management.

Another strategic initiative under discussion is to form a [less] permanent capital vehicle structure. While our strategic partner will contribute a portfolio of our performing assets to the company in exchange for value received, the institution will receive commensurate amount of the shares of the company. The reconfigured permanent capital vehicle will be able to take advantage of a significant tax loss forward -- loss carryforward and utilize the various financial license owned by the company.

We are also exploring new business opportunities in investments, recapitalization, mergers and acquisitions. With these 3 key components as the new business directions, the management believes that the company is on the right track to exit the lending marketplace and lending platform business and the transition into a new business direction. This will help us to address potential delisting due to our current low market capitalization.

We obtained NYSE approval for our restructuring plan. And we undertook a change in our ADS to share ratio to increase our share price. And now we have become encouraged in our financial reporting. We may choose to reinstate our previously disclosed share repurchase program.

Let me now turn the call to our CFO, Steven Foo, for financial details.

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Steven Foo, China Rapid Finance Limited - CFO & Executive Director [4]

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Thank you, Zane, and thank you, everyone, for joining our call today. I will now review our financial performance. Our press release contains all the figures and comparisons. I'm not going to repeat all the numbers. Instead, we are going to focus on the analysis of the factors that influence results.

Keep in mind that we're referring to 6- and 9-month figures, and all the comparisons are to the comparable periods in the calendar unless stated otherwise. And as Zane mentioned, due to the requirements from the change in regulatory policy, we stopped matching any loans at our legacy marketplace lending platforms in April. Capital lending existing customers have begun facilitating financial institutional lending capital for our borrowers.

Our net revenue was $19.3 million for the first half of 2019, down by 37% compared to the same period in 2018, and $23.5 million in the 9 months of 2019, down by 51% as compared to the same period in 2018. In the transition period, we finally control our operating expenses. The cost-cutting efforts we initiated right after we exited the legacy platform business has been very good as shown in our lower operating expenses in the period.

The operating expenses for the first half of 2019 decreased by $31.7 million, down by 44% from the same period in 2018. And for the 9 months 2019, it decreased by $54.6 million, down by 54% from the same period a year ago. Net loss in the first half was $20.6 million, down from a loss of $40.8 million in the same period in 2018. And net loss in the first 9 months, $22.8 million, down from a loss of $51.8 million in the same period in 2018. The loss reduction was mainly due to the termination of customer incentives, reduction in branch operating costs, lower sales and marketing costs and a streamlined business process, with significantly improved operating efficiency.

On June and September 2019, we had cash and cash equivalent of $12.5 million and $15.5 million respectively. With the tax control -- cost controlling the business transition period, we managed our cash balance growth from June to September, as you can see our continuous efforts on improving operating efficiency and positioning us for the transition in the new business direction. We are confident that this new initiative will create additional growth opportunities for us going forward. The company has also engaged in discussions regarding various forms and mechanisms for operating capital.

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Operator [5]

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Pardon me, ladies and gentlemen, it appears we have lost connection to our speaker line.

(technical difficulty)

Pardon me. This is the operator. Thank you for your patience. We have reconnected with the speakers, and we'll continue with the conference. Please proceed, Steven.

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Steven Foo, China Rapid Finance Limited - CFO & Executive Director [6]

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Hello, everyone. On June 30 and September 30, 2019, we had cash and cash equivalent of $12.5 million and $15.5 million, respectively. With the tight cost control in the business transitional period, we managed our cash balance growth from June to September, evidenced in our continuous efforts on improving operating efficiency and positioning us for the transition into the new business direction. We are confident that these new initiatives will create additional growth opportunities for us going forward.

The company has also engaged in discussions regarding various forms and mechanisms for raising capital. We have not done a capital raise since the company's IPO in 2017 and we have no long-term debt.

Looking forward, we remain confident in our long-term business prospects and are committed to create value for our shareholders. As they say, the most important takeaway is that we are continuing to operate after our decision to exit the peer-to-peer business, and our cash position has been improving.

With that, we'll move to the Q&A session. Operator, can you begin?

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Operator [7]

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(Operator Instructions) At this time, I'm not seeing any questions in the question queue. I will turn the call back over to Dr. Wang for the closing remarks.

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Zhengyu Wang, China Rapid Finance Limited - Founder, Chairman & CEO [8]

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Thank you, again, for joining us today. Looking at our 6 months and 9 months financial results, we see that the door of the marketplace -- lending marketplace platform was closed by the regulators. As a result, we decisively cut down our expenses while maintaining our core functions to serve the existing investors and the financial lenders, thereby improving our cash position during the period. We believe we are now well positioned in the transition to the new business direction, and we'll continue our hard work to achieve our transformation to our new business model.

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Operator [9]

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This concludes the conference call. You may now disconnect your lines. Thank you.