Jianpu Technology. (NYSE:JT) Q2 2022 Earnings Conference Call August 23, 2022 8:00 AM ET
Company Participants
David Ye – Chairman, Chief Executive Officer
Oscar Chen – Chief Financial Officer
Colin Cheung – Head of Corporate Development and Investor Relations
Conference Call Participants
Operator
Good day and welcome to the Jianpu Technology Incorporated Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded.
I would now like to turn the conference over to Mr. Colin Cheung. Please go ahead, sir.
Colin Cheung
Thank you operator. Hello everyone and thank you for joining us today. Our second quarter and first half year 2022 earnings release was distributed earlier today 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 our operations and company highlights followed by Mr. Chen, who will discuss the financials and guidance. They will be available to answer your questions during the Q&A session that follows.
Before we begin, I’d like to remind you that this conference call contains forward-looking statements as defined in Section 21(e) 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 relate 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 these 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 except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during the conference call are in renminbi.
Is it now my pleasure to introduce our co-Founder, Chairman and Chief Executive Officer, Mr. David Ye. David, please go ahead.
David Ye
Thank you Colin. Hello, everyone. And thank you for joining us today. During the second quarter, the rolling lockdowns across China, caused by the resurgence of COVID-19 resulted in a more challenging macro environment. Nevertheless, we continue to deliver another quarter of strong results with total revenue of 34%, and the bottom line improvement by 9%.
The solid results primarily results from four areas. Number one, diversification of our revenue base number two, strong omnichannel marketing capabilities, number three continued operating efficiency improvements, and number four disciplined cost cutting and optimization. The results also demonstrated our persistence in pushing forth vision of ‘Becoming everyone’s financial partner’.
Let me start today, by going through the key highlights for the second quarter, then share some of our views on the current macro environment and the regulatory dynamics in China, and how they could potentially impact our businesses. Before turning over to Oscar to go through the financial performance.
First, our diversification strategy has enhanced our business resilience and it supports the strong revenue growth under the current challenging macro environment. Nowadays, we generate our revenue via our platform by offering recommendation services of credit card loans, and insurance products, as well as other products, products and services. We are cooperating with 1500 more financial service providers and other customers throughout the ecosystem of consumers and small businesses credit product offerings. We provide our marketing and user acquisition capability, data analysis and risk management solutions and other technological and services enabling financial institutions digital transformation.
Geographical wise, we serve our users across the country with a very low concentration risk. In the second quarter of 2022 we further penetrated into the second and third tier cities with around 65% of the loan recommendation revenue contribution from second and third tier cities versus the 55% in the first quarter. As you may know, second and third tier cities, the impact from COVID are actually less compared to Shanghai and other larger cities.
In the second quarter, the resurgence of COVID has prompted the multiple lockdowns across China, as some of our business operations still rely on face to face communications and on site implementation with customers. This current measure has brought about certain challenge. However, thanks to our diversification strategy, our recommendation business continued to achieve significant growth with revenues increasing 38% year-over-year, and 42% quarter-over-quarter.
In particular, we kept our market leading position in the credit card recommendation business and the revenue from our credit card recommendation business maintained robust growth of 36% year-over-year. Our loan recommendation business also benefited from a more diversified customer base with revenue growth at 42% year-over-year.
Second, we continue to enhance our omnichannel marketing capabilities to enable the digital transformation of the financial industry. This allowed us to capture the increasing demand from financial institutions for acquiring, identifying and engaging new users for different geographics, and the younger demographics. Our Big data solutions also improved the risk management capabilities, and the customer acquisition efficiencies of financial service providers.
In Q2, we made certain achievements to further diversify our user base and strengthen our omnichannel solutions. Our social media and a partner program continued a leading position delivering both growth and efficiency. Our share in mainstream media and acquisition channels with various construction scenarios continue to grow, solidifying our widely recognized position in the industry.
Another initiative worth mentioning is our efforts in promoting DCEP or digital currency electronic payments. In recent years, the Chinese authority and focused on the quantitative qualitative development of the economy, primarily driven by on-going digital transformation, including the introduction and promoting of its digital currency DCP. Since 2019, the Central Bank has conducted a pilot test of DCP in different consumption scenarios in various cities, leveraging our leading position in our recommendation businesses, our team had a significant wing in partnering with a large bank to market as a digital wallet. We rely on the government’s commitments and investments in promoting the application of DCEP to explore further business opportunities in this area.
Third, is the on-going improvement in our operating efficiency? And against the backdrop of a macro economy and regulatory uncertainties, we continue to strive to achieve a good balance between managing our continued growth and operating efficiency. Our overall ROI or revenue from recommendation services, advertising and marketing services, divided by the corresponding costs of acquisition and promotion continue to improve by eight percent points sequentially in the first half of 2022, of which the ROI of our recommendation businesses improved by seven percentage points, versus the second half of 2021. We also continue to see a encouraging trend in our new initiatives, delivering an 11 percentage points ROI improvement versus the second half of 2021.
Finally, our disagreement cost cutting and optimization measures help to reduce loss significantly, as we continue to optimize our operating costs and expenses while better utilizing the company’s resources. We have enhanced our overall productivity, leading to a margin improvement and our lower net loss in the second quarter. Our operating loss reduced significantly by 48% year-over-year, while our adjusted net loss margin further improved by eight percentage points, compared with the second quarter of 2021. Over the coming quarters, we will maintain this approach of disciplined spending, striving to achieving further improvement in our productivity and the margin.
I will now take a few minutes to discuss the latest macro environment, regulatory dynamics and our business outlook. With regard to the macro and regulatory environment the rolling lockdown across China, has pointed out moderation of real GDP growth to 0.4% year-over-year in the same quarter. Nevertheless, the state council executive meeting held in late July, stated that China’s economy should grow with a reasonable range this year, with a particular emphasis on the stability of employment and inflation. This should be achieved by the expansion of effective investment under the continued promotion of private consumption. Meanwhile, the meeting also called for the active and the consistent the development of the digital consumption. We believe the government will maintain a more relaxed physical policy and the monetary policy to revive the economy in the near term.
As we have seen signs of a liquidity injection into the financial system it depends accelerating their long growth recently, the government also calls for continued promotion of private consumption, particularly for developing digital consumption, which should be positive catalysts to facilitate further expansion of our loan, and the credit card recommendation businesses, given our leading position in the market. The government issued new regulations and the policies in terms of internet lending, and the credit card businesses business, advocating banks to engage in digital transformation, product innovation, and the development of loan and credit businesses. We believe this would benefit the market leaders like us.
Lastly, the COVID control measures still use our uncertainties. Now they may continue to have impact on certain segments of our operations for the next few quarters. However, our robust and the resilient results for the second quarter highlights the strong benefits of our diversification strategy. Thus we are cautiously optimistic about our business performance for the second half of this year.
In summary, we believe our strong business model investments in our omnichannel marketing capability, leadership position in digital transformation solution, and the discipline in cost control measures, we ultimately deliver better business results for the next quarter.
I will now turn the call over to our CFO Oscar Chen who will discuss our financial results. Thank you.
Oscar Chen
Thank you, David. And hello everyone. As David mentioned earlier, we delivered a solid financial results with resilience, revenue growth and healthy margin improvement in the second quarter of 2022. Our second quarter result our consistent efforts into diversifying revenue stream and optimizing cost structure. Our total revenues for the second quarter of 2022 increased by 33.9% to RMB265.1 million from RMB198 million in the same period of 2021.
Our market leading position in recommendation services [ph] obtained will total recommendation service revenue increasing by 37.8% to RMB204.7 million from RMB148.6 million in the same period of 2021 on the back of the 36% and 41.5% year-over-year increase in credit card and the loan recommendations service revenue, respectively.
The increase in revenue was mainly driven by the increasing number of loan applications 43.3% and the credit card volume 33.3% on the back of our geographic diversification strategy, and omnichannel marketing strategy. While the average fee per credit card also slightly increased to RMB113.4 and the average fee per loan application increased by around 9.2% to RMB15.4 in the second quarter of 2022.
Revenues from big data and system-based risk management services decreased by 37% to RMB22.8 million in the second quarter of 2022 from RMB36.2 million in the same period of 2021, the decrease is mainly due to the COVID-19 impact on our cooperation with customers, as well as our product adjustments.
Revenues from advertising and marketing services and other services increased by 187% to RMB37.6 million in the second quarter of 2022 from RMB13.1 million in the same period of 2021, primarily due to the significant growth of insurance brokerage services and initiatives of other new businesses.
Let me now move on to costs and expenses. Cost of promotion and acquisition mainly consists of the expenditure relating to our marketing efforts and activities, which increased by 41.4% to RMB191.8 million in the quarter of 2022 from RMB135.6 million in the same period of 2021. The increase will be in line with the growth of our revenue from recommendation services, insurance brokerage services, and initiatives of other new businesses.
In the second quarter of 2022, we have seen continuous trend of efficiency improvement. ROI of recommendation service, advertising and marketing service and other services have shown encouraging improvements with the sequential increase of 8 percentage points in the first half of 2022, reflecting our continued efforts to achieve a good balance between growth and efficiency.
We continue excluding our cost optimization measures. As such, cost of operation decreased by 21.5% to RMB20.4 million in the second quarter of 2022 from RMB26 million in the same period of 2021. And our sales and marketing expenses, R&D expenses, and the general and administrative expenses decreased by 11.7%, 11.5% and 25.3%, respectively, in the second quarter of 2022 compared with the same period of 2021.
Measured as a percentage of total revenue, sales and marketing, R&D, and G&A expenses in total were 33.5% in the second quarter of 2022 reflecting a decrease of 20 percentage points from the same period of 2021.
With our continued efforts in optimizing our cost structure and improving the productivity of our businesses, loss from operations was RMB35.9 million in the second quarter of 2022 compared with RMB59.5 million in the same period of 2021. Operating loss margin was 13.5% in the second quarter of 2022 compared with 35.1% in the same period of 2021.
Our net loss and non-GAAP adjusted net loss were respectively RMB35.9 million and RMB33.2 million in the second quarter of 2022 compared with RMB44.5 million and RMB40.6 million in the same period of 2021.
Given the growing scale and improving efficiency, our net loss margin and non-GAAP adjusted net loss margin improved by 8.9 and 8.4 percentage points respectively compared with the same period of 2021.
As of June 30, 2022 we maintained a balance sheet with cash, cash equivalents and restricted cash and time deposits of RMB673.2 million. So with that, I will conclude our prepared remarks. We will now open call to questions. Operator, please go ahead.
Question-and-Answer Session
Operator
[Operator instructions] And the first question will come from Kevin Wong with Spicer [ph] Capital. Please go ahead.
Unidentified Analyst
Thank you for answering my questions. I have two questions, one related to strategy and COVID. And another one related to your financials. The first question, the management mentioned that the strong results in the second quarter were benefited from your diversification strategy. So could you give us more color about the strategy and how does it work during the period of multiple lockdowns across China? Also, how do you expect the COVID situation to be continuous would impact your business trend in the second half of this year?
The second question we noticed that significant margin improvement in the second quarter and could you please elaborate the main drivers behind also regarding the cost optimization measures you mentioned, how should we expect the impact of such measures in the second half of this year and the cost base going forward. Thanks.
David Ye
Thank you, Kevin. This is David. I will try to answer the first question. I will leave Oscar to answer the second question. Your first question is regarding diversification strategy. So definitely, from a strategy standpoint, we believe diversification has helped us defend the headwinds from COVID lockdown and other challenges. So I would, I would answer the diversification from forefront. I mean, the first part is we diversify our product segments for our recommendation services.
The second, we actually diversified geographically, I mean, across China. And the third point, we also have just 25 [Indiscernible] for marketing and the traffic acquisition source, in that we had the resurge [ph] as well. And the last piece, demographically, we have seen our user days have about a more diversified geographic demographic coverage. So that was probably the first one as, as you guys understand the our revenues from multiple product segments, such as loan recommendation, political recommendation, insurance, brokerage business, as well as other adjacent categories, we did see our recommendation business like growth, revenue growth, around 38%, quarter-over-quarter. And that we have also seen a change in the business to revenue growth. It’s over 100%, of course, is a small page.
So diversify revenue by multiple product segments has enabled us to grow more, more strongly and also robustly in second quarter. The second piece in terms of geographical diversification, we don’t see any concentration in terms of our user base across Chinese, China’s provinces or cities in the second quarter of this year, much higher growth in the second tier, and tertiary or third tier cities as you may know, second, third tier even fourth tier cities, those regions actually have had less impact from COVID compared to big city like Shanghai. So that’s definitely we see a more stronger growth in like lower tier cities or even some of the good areas.
So we have some strong number of growth in terms of lower tier cities. So the third piece in terms of our marketing and traffic acquisition source, our social media and the partnership program, as well as our omnichannel marketing tools, actually, we’re able to track people from some consumption scenarios such as from a shared economy and younger lifestyle and also digital savvy channels and partners. So that definitely helped us to weather the storms or the — from the lockdowns.
So, lastly, in terms of who our user acquisition, and our we have, we have analyzed our demographic distribution in the last few quarters, especially last quarter, we have seen a rising focus in terms of China’s nearly 300 million in new adding residents know that migrants from company to see to some of the urban from the rural area to second and the third tier cities. So this creates a additional cost driver in terms of what this young and new urban and residents they are looking for enhanced financial products and services. Now, we are able to track those young urban generations, younger generation and demographic residents and recommended to our like, also more diversified number of financial institutions.
So, I will stop here for our diversification strategies, but you also asked the exploitation from the COVID situation. As I mentioned that the COVID situation is likely to continue for the next quarter, we will definitely hope for the situation we are improving for the foreseeable future.
Okay, I will turn it over to Oscar for the second part of your question.
Oscar Chen
Yes. Thank you, David. And, Kevin, for your second question regarding the drivers behind the margin improvement. I will try to answer your question. As we emphasize and continuously delivered in the past several quarters, and our strategy to manage the business is to balance between growth and efficiency. So, in the current market sentiment, we are allocating our internal resources based on the contribution margin, i.e. the possibilities and secondly, the growth potential. So, this is why we can achieve better efficiencies in recent in recent quarters.
So, in addition to the efficiency, I think another driver is our discipline, the cost control, particularly in the current micro environments with quite some uncertainties, cost control is quite important to manage our business. In the first half, we focused on consolidating overlapping resources among our various business lines to enhance our productivity and, and also reducing the fixed costs. We see a clear results. So, expenses, as you know, that’s marketing G&A and R&D expenditure of revenue were 20 percentage points lower than the same period of 2021 down to 33.5% of revenue and that leads to our operating loss margin improved to 13.5%.
Yes, looking of course, I want to mention from cost optimizer — may have some lagging effects, which will further benefit us in the second half of this year. If you look into the second half of the year, anticipating the challenges and certainties we will further cut down the resources allocated to the business with lower efficiency. Now, of course, we will, we’re all thinking about the allocation between the different business lines. We are allocating more to the to the – business lines with high probability, and cut down the resources for the business line with lower efficiency. So that’s our strategy.
And also at the same time we’ll further optimize some contract based system fixed costs when the contract term is due. So along with our gross along with the growth of our business, and our further optimization on cost side, we are expecting a better margin profile down the road. I’m not sure whether this answers your question, Kevin.
Unidentified Analyst
Very clear, thanks.
Operator
This concludes our question and answer session as well as our conference call for today. Thank you for attending today’s presentation, you may now disconnect.
David Ye
Thank you very much.
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