Jianpu Technology Inc. (JT) Q2 2023 Earnings Call Transcript

Jianpu Technology Inc. (NYSE:JT) Q2 2023 Earnings Conference Call August 21, 2023 8:00 PM ET

Company Participants

Liting Lu - IR

David Ye - Co-Founder, Chairman & CEO

Oscar Chen - CFO

Conference Call Participants

Operator

Hello, and welcome to the Jianpu Technology Inc. Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to questions. [Operator Instructions] Please note, today's event is being recorded.

I'd now like to turn the conference over to Liting Lu, Investor Relations Director. Please go ahead.

Liting Lu

Thank you, operator. Hello, everyone, and thank you for joining us today. Our second quarter 2023 earnings release were distributed today earlier and is available on our IR website at ir.jianpu.ai as well as on PR Newswire services. On the call today from Jianpu Technology, we have Mr. David Ye, Co-Founder, Chairman and Chief Executive Officer; and Mr. Oscar Chen, Chief Financial Officer. Mr. Ye will talk about the operations and the company highlights followed by Mr. Chen, who will discuss the financials and guidance. They will all be available to answer your questions during the Q&A section that follows.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and current market and operating conditions and relates to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control.

These risks may cause the company's actual results or performance to differ materially. Further information regarding this and other risks, uncertainties or factors is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, expect -- except as required under the applicable law. Finally, please note that unless otherwise stated, all figures mentioned during the conference call are in RMB.

It is now my pleasure to introduce our Co-Founder, Chairman and Chief Executive Officer, Mr. David Ye, please go ahead.

David Ye

Thank you, Liting. Hello, everyone. Good morning and good evening. I've been sitting under the weather with sore throat for the past two days, so Oscar Chen will be handling the CEO's group on my behalf. I will try to answer one or two questions during the Q&A session. Oscar, please go ahead.

Oscar Chen

Okay. Thank you, David. Yes, I'm Oscar. Today, due to David's sore throat, I guess everyone on the call can hear that. So I will do David's part on his behalf, followed by my part, the CFO's scripts and I say David's voice for the Q&A part. So let me start with the CEO script first.

Thank you, everyone for joining us today. After strong reopening boost earlier this year, the second quarter saw some volatilities and slowdown in terms of economic recovery. Furthermore, the second quarter was a critical quarter for certain regulatory policies implementation and execution, which presented certain challenges to us. Despite these headwinds, we continue to deliver another solid quarter benefited from our capital light platform model and the diversification strategy, with a continuously improving margin profile of approaching breakeven and year-over-year revenue growth of 7.7%.

With our strong commitment to the digital transformation of financial services providers and other ecosystem partners, we continue to enhance our leading market position. Our loan recommendation has witnessed a further year-over-year revenue growth of 26%. Our in-depth cooperation with financial sector partners resulted in a rebound of our data, big data and system-based services revenue, recording a year-over-year growth of 23.2% in the second quarter. Furthermore, we achieved high growth in our new business -- new businesses with an 88.6% surge in revenue.

As we continue to improve operational efficiency and optimize cost structure, our ROI increased significantly to 135% with 9 percentage point improvement year-over-year. Our AI initiatives also helped in this regard. With certain AI technologies integrated into our daily operations, we have seen the benefits of efficiency enhancement. More importantly, we are approaching breakeven with a net loss margin of 0.3% in the second quarter, showcasing our steady trajectory of generating sustainable long-term growth.

Now let me go through key performance highlights from the -- of the third (ph) quarter. First, being an independent open platform with diversified business mix, we delivered a solid quarter with a more balanced revenue structure. Our revenues from loan recommendation and big data and system based risk management services continued to grow over 20% year-over-year respectively, benefiting from the digital transformation of the financial sector. In addition, our initiatives of expansion into adjacent categories and the non-financial sectors have yielded preliminary successes.

The revenues in this regard achieved a year-over-year growth of 88.6% in the second quarter with continued efficiency and margin improvements. As such, the revenues from loan recommendation, big data and system based risk management and marketing and other services contributed 29%, 10%, and 25%, respectively of total revenues in the second quarter. The revenue from credit card recommendation services decreased by 25.7% year-over-year due to the lowering market budget of credit card issuers since May.

Consequently, its contribution to the total revenue reduced to 36% in the second quarter. The more diversified business mix and the revenue structure demonstrated the network effect of our platform business model. This includes leveraging our cutting-edge technology and extending our existing marketing and acquisition capabilities into adjacent categories and industries including telecommunications, e-commerce and lifestyle products and services to facilitate their digital transformation.

Second, we further enhanced our operational efficiency and optimize our cost structure, leading to a continued margin improvement. In the second quarter, the ongoing optimization of both products and monetization, coupled with new partnerships, resulted in a commendable increase in ROI, which stands at 135%. Additionally, in line with our commitment to innovation, we further integrated AI tools, including various generative AI solutions into our daily operations and saw many improvements in the operational efficiency, particularly for our R&D team, achieving significant cost savings.

Such efforts have contributed directly to our margin improvement, and our operating loss margin decreased -- and our operating loss decreased by 75% year-over-year in the second quarter, whilst operating loss margin improved by 10 percentage points, achieving 3.7%. As a result, our net loss margin reached 0.3%, approaching breakeven.

Third, we continue to leverage our industry expertise and market-leading technologies and solutions, enabling our financial partners' digital transformation. Leveraging our reputation and experience accumulated from many years deep cultivation in the financial sector, we continue to explore new acquisition channels to further diversify and enhance our marketing and acquisition capabilities.

For example, in the second quarter, we appointed our in-house financial experts to share on live streaming platforms of their valuable industry insights on AI, modeling and other topics. We also established a strategic partnership with a well-known Internet giant, solidifying our position as one of the few recognized platforms for financial product discovery and recommendation in the market. In addition, we continued to extend the reach of our social media marketing channels, which strengthened our competitive edge in the industry.

These efforts have expanded and strengthened our long-term partnership within the financial sector, through which we are ultimately driving the digital transformation of the financial industry. We continue to deliver our cutting-edge algorithm and modeling capabilities to our financial partners under the new regulation, resulting in a 23.2% increase in revenue from big data and system-based services in the second quarter, and paving the way of collaboration with financial service providers with a broad spectrum of products and services.

Last but not least, I also want to share with you some new AI initiatives have been instrumental to driving -- in driving innovation. Aggregating various AI tools into an internal one-stop portal, we have seen that approximately 72% of our employees are utilizing AI tools and technologies in their day-to-day work, enhancing operational efficiency in areas such as R&D, customer service and finance.

In addition to such efforts that benefit us internally, we have also been actively exploring new avenues of AI development to empower our ecosystem partners with innovative solutions. During the second quarter, we organized an AI Hackathon event, where are several projects and initiatives demonstrated the potential for further development and commercialization. Going forward, we will continue to allocate resources to drive innovation in the AI space as we strive to develop the next version of a technology-based inclusive finance business model.

Before I turn to the CFO part, allow me to take a moment to discuss the macro environment and our business outlook. Given the recent volatilities, there remains some uncertainties surrounding the development and the recovery of the economy. In response, the Chinese government and the regulators have taken proactive measures to revitalize and expand market demand with a specific focus on stimulating private consumptions.

It is expected that the near-term implementation and execution of additional stimulus policies will be critical to the remaining of this year. Financial service providers and other ecosystems are expected to exercise their caution and continue to tighten their spending in the interim as what we observed in the second quarter that certain credit card issuers are lowering their market budget.

As a result of these circumstances, we remain cautious in our outlook for the second half of this year, and we'll continue to focus our efforts on efficiency improvements and cost optimization of our existing businesses. Despite the near-term impact, our dedication to executing our vision of becoming everyone's financial partner for this, and we are committed to driving the digital transformation of the financial industry, which we believe will generate long-term value for our shareholders.

Now I finished the CEO part and will turn to the CFO part to discuss financials in detail. As mentioned earlier, we are pleased to announce a solid financial result, with resilient revenue growth and healthy margin improvement in the second quarter of 2023. Our second quarter results reflect our persistent efforts in diversifying business mix, improving operational efficiency and optimizing cost structure.

Our total revenues from the second quarter of 2023 increased by 7.7% to RMB285.5 million. Our market-leading position in recommendation business sustained with total recommendation services stood at RMB186.5 million in the second quarter of 2023.

Revenues from credit card recommendation services decreased by 25.7% year-over-year in the second quarter, mainly due to the lowering marketing budget of certain credit card issuers. Credit card volume decreased year-over-year by 25% to approximately 0.9 million and the average fee per credit card adds up to RMB113.5 in the second quarter of 2023. Revenues from loan recommendations increased by 26% year-over-year in the second quarter, mainly driven by the increase in the number of loan applications by 27.9% year-over-year to approximately 5.5 million.

Revenues from big data and system-based risk management services increased by 23.2% to RMB28.1 million in the second quarter of 2023 from RMB22.2 million (ph) million in the same period of 2022. This is mainly due to the increase in average spending per customer. Revenues from marketing and other services increased by 88.6% to RMB70.9 million in the second quarter of 2023 from RMB37.6 million in the same period of 2022, primarily due to the significant growth of our insurance brokerage service and initiatives of other new businesses, further proving our success in applying our strong technological and digital marketing capabilities into adjacent categories.

Let me now move on to costs and expenses. Cost of promotion and acquisitions decreased by 0.7% to RMB190.4 million in the second quarter of 2023 from RMB191.8 million in the same period of 2022. The overall ROI for recommendation services and marketing and other services improved by 8.8 percentage points sequentially to 135.2% in the second quarter, demonstrating our continuous improvement in operational efficiency. We continued executing our cost optimization initiatives. As such, cost of operations decreased by 2% to RMB20 million in the second quarter of 2023 from RMB20.4 million in the same period of 2022.

Our sales and marketing expenses and R&D expenses decreased by 0.9% and 16.7%, respectively, while our general and administrative expenses increased by 8% in the second quarter of 2023 compared with the same period of 2022. Measured as the percentage of total revenue, sales and marketing, R&D and G&A expenses in total were 30% in the second quarter of 2023, reflecting a decrease of 3.5 percentage points from the same period of 2022.

With our continued efforts in optimizing our cost structure and improving the productivity of our businesses, loss from operations was RMB10.6 million in the second quarter of 2023 compared with RMB35.9 million in the same period of 2022. Operating loss margin was 3.7% in the second quarter of 2023 compared with 13.5% in the same period of 2022. We are on track of approaching breakeven and recorded net loss and a non-GAAP adjusted net loss of RMB0.9 million and RMB7.3 million in the second quarter of 2023 compared with a loss of RMB35.9 million and RMB32.2 million in the same period of 2022, respectively.

Our net loss margin and non-GAAP adjusted net loss margin for the second quarter improved by 13.2 percentage points and 9.5 percentage points to 0.3% and 2.6%, respectively, compared with the same period of 2022. As of June 30, 2023, we maintained a balance sheet with cash, cash equivalents and restricted cash and time deposits of RMB668.5 million.

With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Question-and-Answer Session

Operator

Yes. Thank you. At this time, we will begin the question-and-answer session. [Operator Instructions] And the first question comes from Carl Wong with [indiscernible].

Unidentified Participant

Hi, management. Can you hear me?

Oscar Chen

Yes. We can hear you.

Unidentified Participant

Thank you. Thanks for taking my question. I actually have two questions. For the first one, I would like to know more about your new businesses. So can you elaborate on marketing and other services? Can you share with us what are the synergies with our existing business and how do you see the growth potential of our new businesses? Thank you.

Oscar Chen

Okay. Yes. So we take your questions one by one. [Multiple Speakers]

David Ye

Can you repeat your question? We actually can't hear clearly here in Hong Kong. And then we have crowd.

Unidentified Participant

Is it clear now?

David Ye

Yeah. This is better. This is cool. This is good.

Unidentified Participant

So...

David Ye

Yes, we can hear you.

Unidentified Participant

Okay. Sorry, maybe it was disconnected. I would like to know more about our marketing and other services, our new business. So can you elaborate on the new business? And can you share with us what are the synergies with our existing business? How do you see the growth potential of our marketing and other services? Thank you.

David Ye

Okay. Got it. I will try to answer this question. So yes, at Jianpu, our mission and vision is to become everyone's financial partner, right. Our users, our customers are actually, customer focus, actually part of our culture. Number one, actually adding our culture. As we started 12 years ago, we started offering or we started partnering with long financial service partner such as SME consumer loans or banks, companies, credit card issuers, financial growth management information providers as well as other financial products. But in the last 3, 4 years, we have seen more needs from our customers in terms of products -- financial products such as insurance and other non-financial products such as going to have access to a better e-commerce offers as well as other offers for mobile carriers.

So that's why, in the last couple of years, we extended our product offering to our customers for users from mostly, of course, financial products for nonfinancial products. The synergies are so over is all user driven, right? We want to -- we'll actually -- for users, we have multiple products, financial or nonfinancial, and the multiple offers, which can make them faster, easier, more convenient to give the best offer that they've had. In this case, we can help us to build the trust and the brand with our customer better. So that's kind of the key benefits from the user side.

From the company side, from Jianpu side, we had -- in the last 12 years, we have built this super search and the recommendation and offering platform with cutting edge technology, with big data and AI. Of course, we added the insurance brokerage product, the insurance -- we added e-commerce and telecom-related products. And in that case, we'll be able to lower our costs by offering multiple products to our users.

The number you have heard from Oscar, we have seen this marketing and new business, we have seen a high growth -- high double-digit growth in the last two quarters and also with improved efficiencies, improved ROI, not only from the new businesses mostly non-financial products, we have seen the increased return on investment in financial products as well. So in this case, we still remain in front of our customers [indiscernible]. So in the future -- this has proven, in the future we need to still focus on the customer-driven or our user-driven mindset. And we are going to optimize and further develop our business to further transform us from a product-driven company to a more user or customer-driven company. Thank you. Was it clear.

Unidentified Participant

Yes. Thank you for addressing the question. I have another question about our net profit. I see as we continue to see narrowing loss in this quarter, can you highlight what have we done to continue narrowing the losses? And do you expect the business to breakeven by the end of this year? Thank you.

Oscar Chen

David, do you want to answer that question or probably, I can have the first one of the -- to answer?

David Ye

Oscar, go ahead. I can only handle [indiscernible].

Oscar Chen

Okay. Thank you, David.

David Ye

Go ahead.

Oscar Chen

Okay. Thank you for this question. Yeah. I think the -- we are approaching breakeven, but not yet for this quarter. I think your question asked about what we have done in the past several quarters to bring us here. I think that's three part. First is about, of course, is the scale; and the second is the efficiency improvement; and the third is cost optimization so far.

So if you look into the revenue scale in the past six quarters, I think we almost have every -- we almost recorded growth in each quarter year-over-year, thanks to our commitment to the digital transformation of the financial services industry. That's what we -- that's part of our mission, as David said, become everyone's financial partner. We have done this kind of business for close to 12 years.

And also, the scale also benefits from our exploration into the new businesses. That's your first question. What's the marketing and other services are? So that's the initiatives we explored in the past three years. And now it seems that we still recorded high growth, proven our capabilities to enter into these areas.

And then the second is about the efficiency. You can see a sequential improvement of our ROI. The ROI means how we measure our marketing and the user retention capabilities using revenue divided by our cost of marketing and acquisition. So we are seeing the continuous improvement of efficiency in this regard.

And thirdly is the cost optimization. We continued, during the past quarters, of course, including -- that's including some cost-cutting initiatives and also -- it's also an efficiency gain in terms of we deployed certain AI technologies into our -- to improve our cost structure. I think that's so far the initiatives and the facts we have -- we've done so far to improve our -- to bring us to the approaching breakeven status.

But looking to the future, I think your second part of your question is about how we can break even by the end of this year. I think nothing can be guaranteed, particularly in terms of the uncertainties and volatilities of the market environment. So if we can continue to grow the scale, improve the efficiency and saving the cost, definitely, we will -- we can be breakeven in the future, but the volatilities and uncertainties may lead to something we cannot control and not -- we cannot expect for now. So yes, of course, our goal is to build a healthy business to make profit, but the visibility of obtaining breakeven is -- I think it's not very near term.

I hope that answers your question?

David Ye

I have a few words to add, this is important. So we were approaching breakeven in Q2. However, I mean our business is heavily dependent on the macro economy of China, especially the health status of Chinese financial markets. We have seen some recent data last week and those data, in terms of the real estate market, the SME and the consumer loan I mean and also amount and also as the deposits. We definitely have seen a big decline of those numbers.

So in the nutshell, Chinese consumers, they are paying or even paying off their debt, businesses are slowing down their borrowing and also their risk -- credit risk or the ability to pay for consumers are actually -- their ability are declining. So as an open platform, we heavily rely on our financial partners, banks, loan bank finance company, credit issuer, data capability to manage credit risk and manage growth and serve their customers. So we are not giving earnings outlook for Q3 or Q4. It's just hard. It's tough. It's not being in the playbook of [indiscernible] data to do the estimation or the estimation.

So that's just my take, my personal take of the sector and economy. However, we as independent of open platform, right? We have seen in the efficiency gain in the last quarter. We have light asset platform. We have been improving over quarter-over-quarter, and we are confident we, the management team and every one at Jianpu, we are able to execute. We are going to outperform our peers and we are going to do better quarter-over-quarter. Thank you.

Unidentified Participant

Got it. Thank you, management.

Operator

Thank you. [Operator Instructions] And the next question comes from Carl Yang with Junggai (ph) Securities.

Unidentified Participant

Hello, management. Can you hear me?

David Ye

Yes.

Unidentified Participant

Okay. Thank you for giving me the opportunity. I would like to know how has generated AI helped your business? And what will be your plan of AI developments in 2023? Thank you.

David Ye

Oscar, please go ahead.

Oscar Chen

Yeah. Okay. Yes, thank you for the questions. Yes, I think, firstly, for the AI, I think it's still in the early stage to -- I think, almost in early stages to everyone. So for now, what we have done is we created an internal one-stop model that's aggregating various AI tools, including large language models and other AI technologies for our internal use. So through that we already shared some in our -- in our prepared scripts that we see significant efficiency gain in terms of using AI tools in our daily work, particularly the R&D, the enhanced efficiency of the -- of our engineer to write code and also in our customer services so on and so forth. So that's the internal part.

And also, we have capturing the wave of AI, we will build -- we have AI Hackathon event in the second quarter. The purpose of this event is to encourage and to find some bottom-up ideas, initiatives that could be further developed or commercialized. In that event, we do find some interesting ideas, but it's still in idea or demo stage. But we see some potential there and we look forward, we can help our team to further build and enhance these initiatives and hope that can be commercialized in the future.

And also one thing we want to share is, you may also heard from the expert and media that if to deploy the AI, particularly the large language model into certain scenario or user case, the sector expertise or the domain knowledge will play a more important role in that regards. We also believe in that theory given what we have accumulated in the financial services industry, including the data, the user, the user behavior, all these could be the pretreating materials to feed into the large model and may turn out into something interesting.

Yes, I think David may can add up something. But one thing we are sure is that to embrace the change from the AI technology, we definitely will allocate some resources into the AI space and to do some. And we are targeting to do something interesting, something creative and something that can enable our financial partners to do their business better and serve their users better in the future. [Multiple Speakers]

David Ye

Yeah. Just one or two things to add, like Oscar said, the AI application or AI training big model is still in a very early stage, even [indiscernible] in Silicon Valley and China. I just have two points. Number one, we are not going to spend $5 million, $10 million to buy lots of CPUs or training the large models with a lot of our capability and no -- we don't have that financial expenses. We don't want to join that double mean that's rest assured. That's a clear message to our institutional investors and all other investors, right? However, what's our strength? Our strengths are we have the financial sector data. We have lot of feedback data arise.

We are working with close to 1,000 financial institutions. I mean, heavily, we've been working with them for years. So we have scenarios trying the credit cards [indiscernible] insurance in Chinese [indiscernible], right? That's why we are able to work with a lot of the open-source large models overseas or domestically to train or enhance the tools, models. So that's why we are in a more sales mode, not in the other mode. We want to like develop in the financial services vertical in terms of solving the problem for our financial partners as well as our customers, Chinese consumers. That means we can helping them to leveraging AI and even the traditional models and some of the data to enhance the overall user experience and the overall digital transformation of risk management, digital experience and such.

So that's what we positioned we are going to do. So finally, as Oscar said, we want to stress, it's still early use again. We will not be a clear winner in a quarter, in 2 quarters, or maybe longer, maybe -- so you don't need to be patient. We need to really working with the partners to enhance and improve the application, the tools and the user experience. Just like Jianpu.ai. Jianpu.ai was funded in 2017 -- just right before our IPO and the Jianpu is our friends and our investors understand Jian in Chinese means simple, cool and inclusive. We had a vision in 2017 to use AI to make finance simple and inclusive. We continue our mission and vision to make AI simple and inclusive.

So now we all know the problem for AI in other sectors, in financial sector is it's too complicated, it's too difficult for consumers that need for billing to use. If we focus with our mission and vision to make AI simple and inclusive in finance and other sectors, we will be successful in the medium and the long term. So focus towards -- focus on strength, focus what we can do, focus on our mission and vision. That's the best offer we comprised to our shareholders and that's the solutions we can provide to our customers and partners. Thank you.

Operator

Thank you. [Operator Instructions] All right. This does conclude the question-and-answer session. So I would like to turn the call to Liting Lu for any closing comments.

Liting Lu

Thank you once again for joining us today. If you have any further questions, please contact us at ir@rong360.com. Thank you for your attention, and we hope you have a wonderful day. Bye.

Operator

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