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Jianpu Technology Inc. (NYSE:JT)
Q3 2019 Earnings Call
Dec 9, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to Jianpu Technology Inc.'s Third Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Liting Lu, Jianpu's Investor Relations. Please go ahead.

Liting Lu -- Investor Relations

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 US 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 the 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 the non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see our third quarter 2019 earnings press released 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 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 CEO and Mr. Oscar Chen, CFO.

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 third quarter. Mr. Chen will then provide details on the company's financial results and the business outlook before opening the call for your questions. Mr. Ye, please go ahead.

Daqing Ye -- Co-Founder, Chairman & Chief Executive Officer

Thank you Luting. Hello, everyone, and thank you for joining us on our call today. We are pleased to report another quarter aligning with our mission to become everyone's financial partner. This quarter Jianpu has beaten guidance and we have exceeded our guidance for the past nine consecutive quarters since our IPO amid the challenging macroeconomic environment and the uncertainties in China's retail financial industry.

The 18 months loan trade disputes has heightened the risk of an economic slowdown. The growth of China has slowdown to over 20-year low. Overall slowdown of macro economy and credit tightening continues to put downward pressure on consumer and SME lending. According to PBoC the Central Bank, the growth of the retail consumer loans significantly slowed down in the first half of 2019 with incremental volume, less than 30% of the second half of 2018. The licensed non-bank financial companies or NBFC. New loan disbursement in Q3, was almost flat with 0.02% increase compared to Q2, moreover, the increase of short-term loan disbursement by meeting an small size banks increased only 1.4%, which is significantly lower than the same period last year. At the same time, the growth of credit card revolving balance also slowed down sequentially in the third quarter.

The tech enabled retail, financial services industry in China today is entering a new era of transformation and reset. As a financial service providers, accelerating their digital adoption, the online lenders funding source are moving toward better regulated institutional funding, with the increasing protection of personal financial information especially on how the data is utilized, shared and distributed. Moreover, some over aggressive or inappropriate collection practices by third party debt collection agencies had caused widespread concern and they became a rising challenge in the short term for all players in financial service industries.

Last, in recent months regulatory authorities across a range of jurisdictions have issued quite a few new rules, regulations and guidance, including rules, regulating personal consumer finance [Foreign Speech]. Guidelines regulating cooperation between commercial banks and the FinTech companies. [Foreign Speech]. Guidelines for protecting personal financial data and information. [Foreign Speech] And guidelines for transitioning peer-to-peer lenders into macro lending companies. [Foreign Speech] which we can see that the current trend of industry regulation, ratification continually tightening the overall credit environment.

We want our investors to be aware of this industry regulatory policy change and reform under mounting regulatory pressure. So industry entered into a relatively tightening cycle which consequently has the impact on the supply of financial products, being listed on our platform.

However, our strong technological capabilities industry know-how and in-depth relationship with financial institutions will position us as we tackle and confirm to the new regulatory challenges. For the third quarter our credit card businesses remains resilient with the credit card volume for recommendation services increased 60% year-over-year. We continue to work as the largest platform of owner and user acquisition for major banks and credit card issuers. We have actually strengthened our market position in spite of these turbulent marketing environment. So far we hope the growth to 30 largest bank credit card issuers have been issued more than 15 million credit cards cumulatively.

In addition, we are striving to deepen our cooperation with banks by exploring new initiatives of launching the wealth management and the deposits product and enabling them to improve their digital marketing, risk management and the technological capabilities. To seize the evolving opportunity in the new era of digital financial service industry. We continue to invest in technology and our people and to help to advance new segments of our businesses. We will further leverage cutting-edge technology such as AI, data science, cloud computing and the digitalization to optimize our operation, including user acquisition and engagement, data analytics, security, sales and marketing and partner engagements.

In the past three quarters, we have deployed 20% of our research and development and other resources and efforts into new businesses, which we believe will fuel our growth moving into next year and beyond. Going forward, we will remain focused on these new initiatives better positioning ourselves to capture media and the long-term growth opportunity in the digital financial services sector in China and globally.

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

Oscar Chen -- Director and Chief Financial Officer

Thank you, David and hello everyone. Our performance in the third quarter reflects our efforts in optimizing the business and turbulent operating environment. As a result of our continuing efforts to actively evolve our business in meeting the needs of the digital financial services industry.

Revenues from banks and the license to financial institutions contribute a larger percentage in the past quarter with healthy gross margin growth improving to 92% in the third quarter of 2019 from 89% in the same period of 2018. We strive to continue our balanced strategy and the stable foundation for sustainable operation of the business. In maintaining our leadership in retail, financial services sector, we are well positioned to move up with the market as demand for recommendation services under the capability to fulfil that demand normalizes within the boundaries of the new regulatory actions that are meant to standardize online retail financial services and protect consumers.

To bolster David's financial highlights for the quarter, operationally, credit card volume for recommendation services was approximately 1.8 million, representing an increase of approximately 6% from the same period of 2018. The average fee per credit card for recommendation services increased to RMB109 in the third quarter of 2019 from RMB106 in the same period of 2018. And as a results, revenues from recommendation services for credit cards increased by nearly 7% to RMB195.6 million in the third quarter of 2019 from RMB183.5 million in the same period of 2018. Also encouragingly gross margin improved to 92% in the third quarter of 2019.

For the third quarter we reported total revenue of approximately RMB324 million, a decrease of 27% year-over-year and the non-GAAP adjusted net loss of nearly RMB101 million. Total recommendation services revenues decreased by 24% year-over-year to RMB282 million in the third quarter due to 53% [Phonetic] year-over-year decrease in loan recommendation revenues offset by nearly 7% year-over-year increase in credit card recommendation services revenues.

Revenues from advertising and marketing services and other services decreased by 44% to RMB38 million in the third quarter of 2019 from RMB67 million in the same period of 2018, since the company slow down the pace of certain advertising business. Given the lower efficiency amid the challenging microeconomic environment.

Sales and marketing expenses decreased by 4.6% to RMB325.3 million in the third quarter of 2019 from RMB341 million in the same period of 2018. The decrease was mainly due to the cut down of traffic acquisition costs.

R&D expenses increased by -- increased by 4.7% to RMB67 million in the third quarter of 2019 from RMB63.5 million in the same period of 2018, primarily due to the increase in the payroll cost incurred for the new business initiatives. Our G&A expenses decreased by 36.8% to RMB31 million in the third quarter from RMB48 million in the same period of 2018. As a result non-GAAP adjusted net loss was RMB101 million in the third quarter of 2019. At the same time, non-GAAP adjusted EBITDA was a loss of RMB93 million compared with a loss of RMB13 million in the year ago period.

In response to the challenging micro environment, the management has implemented certain measures to maintain and enhance our operating efficiencies, including cut down marketing and other direct costs to offset the negative impact from supply side of our platform and also launched cost optimization program to enhance productivity perhaps. However, due to the lagging effect of such measures, we expect margin improvement toward first half of next year. At the same time we want our stakeholders to be aware of the current cost and expenses structure also contains certain upfront investments for our new business initiatives. The expenses incurred in this area was around RMB20 million in the third quarter and around RMB35 million in the first nine months.

The management strongly believe that such investment will fuel our future growth and create shareholder value in the long run. As of September 30, 2019 we maintain the strong balance sheet with cash and short-term liquidity of RMB1.1 billion. Regarding the outlook, the company anticipates the external environment to remain uncertain and challenging, and consequently, the financial products available on our platform may continue to decline into the coming quarter. Based on the current current estimates, the Company expects total revenues for the fourth quarter of 2019 to be approximately RMB240 to RMB260 million.

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

Questions and Answers:

Oscar Chen -- Director and Chief Financial Officer

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from John Cai of Morgan Stanley. Please go ahead.

John Cai -- Morgan Stanley -- Analyst

Hi, thank you for taking my questions. So I think my questions is more related to the sector and the regulations obviously, Ye, you mentioned that the lending activities has been negatively impacted by the regulatory tightening. I just wonder if there's any outlook on that. Do we expect it to improve next year and also I think we mentioned about investment into new business. Is there any color on that as well. So the last question is about the reason Beijing regulatory sandbox approach on management is released in the news a few days ago. So would that help in anyway some of our business. Thank you very much.

Daqing Ye -- Co-Founder, Chairman & Chief Executive Officer

Thank you, John. This is David. I would try -- I'll take a stab on your question. So the first part regarding the regulatory environment going forward. We would expect the tightening in lending markets and the relevant trend probably will continue after the Chinese New Year. So, which we have in the end of January. And we believe the retail, financial services industry sector, the uncertainty will be a quarter away, but we definitely will expecting a more visibility after Chinese New Year, which is almost early to -- of next year. And operationally, we believe the business will slowdown because the end of the year and also January that's early Chinese New Year, but expect the business take off after February.

So operating environment will be challenging, but we also -- we have seen that as a competitor. So similar business models, they are actually in a much harder positions due to same regulatory demand, also the operation reason and also liquidity problems. And also for us the advantage of being independent and open platform, we will have a huge benefits because as soon as the market take off. We would able to capture the scalability and our light assets the model we will -- we have gained the market the growth and advantage and also keep in mind we as a light asset platform, we don't any take any risk. We don't have any credit, liquidity or any market risk. So this put us in a relatively stronger position. Okay, that's the first part.

Second part, I believe. John, you asked about the sandbox. The regulatory framework just launched by People's Bank of China, the Central Bank on December 6, just a few days ago. So as far as we understand, we actually had some dialog with the regulator just a few days ago. I mean, there are about 45, 46 project that is going to be part of the sandbox. So basically the purpose of putting Beijing is the testing city for the so-called FinTech innovation and supervision sandbox is to build the FinTech supervision and the regulation basic rules and framework, because so far we know in the past the -- couple of quarters we have rules, regulations from different revenue bodies, but this is the first time the Central Bank say, hey Beijing go ahead and build the basic rules in the framework for financial supervision. That's the first purpose.

So second propose is exploring more like transparency of information and more product demonstration and a more supervision from relevant bodies. The third one, they tried to build a more inclusive and a more prudent FinTech innovation and supervision tools they try to improve and enhance financial regulatory agencies, professionalism and also try to increase transparency and standardization, which is very important. So we believe more clarity, transparency, standardization and more professionalism, which we are -- will be benefit the sector in the short term, mid-term of course in the long term.

And finally in terms of the, the FinTech supervision sandbox as a couple of -- we have seen couple of initiatives that they have launched. Basically, they want to make sure more project of FinTech company get assisting in connection into the testing environment or testing bed. They want more -- they want to foreclosure or more closure from the Financial Institutional or Financial service provider aside. They want some product registration and disclosure and so in that case we believe we positioned as a tech enabled open platform and we are able to work with the public authority in Beijing Municipal Government and also the Beijing Internet of Finance, FinTech association, the China Internet Finance Association, which will be in the past six, seven years we have -- we have partnership, we have a cooperation and we also have some RegTech initiative with the relevant bodies, who will be part of the partner trying to engage with the PBOC endorsed Beijing FinTech Innovation and Supervision sandbox.

John did that answer your question, especially the second part, second half?

John Cai -- Morgan Stanley -- Analyst

Yes. So I think just to follow up on the new business initiative, I think I heard that there is some investment in the area. If there is any kind of that can be provided will be very helpful. Thank you.

Oscar Chen -- Director and Chief Financial Officer

Sure, John. I think, yeah, our new business initiatives will be, I think probably two categories. One is category expansion in terms of financial products to leverage our platform advantage for cross-selling and also the geographic expansion to leverage our technology and industry know how to penetrate into the other markets. So I think we can share more probably next quarter, something, but one thing I want to emphasize is that the management is and will be very disciplined in terms of the spending on the new business initiatives.

John Cai -- Morgan Stanley -- Analyst

Thank you, Oscar. That's helpful.

Operator

[Operator Instructions] The next question today comes from Julie Hou of UBS. Please go ahead.

Julie Hou -- UBS Investment Bank -- Analyst

Yeah, hi, good morning, David and Oscar. Thank you for taking my questions. I have two questions. The first one is our revenue breakdown. Total revenues declined by 11% quarter-on-quarter. I wonder what is the revenue contribution from banks licensed, financial institutions and unlicensed lenders. How do you they compared to previous quarters.

And my second question is on average fee. The third quarter average fee per loan application were RMB17 versus RMB18 in second quarter. What are the key drivers behind the decline, and how should we think about it in the fourth quarter. Also on the credit card side, can we still expect a increase in average fee per credit card issued in the fourth quarter as was the case in previous years. Thank you very much.

Daqing Ye -- Co-Founder, Chairman & Chief Executive Officer

Yeah, thank you, Julie. I think in terms of the revenue contribution from the banks and other licensed companies we are seeing a slight increase in terms of the revenue contribution percentage from last quarter. Given the growth in credit card and also the shrinking in the lending, the loan recommendation services, we are seeing more revenues from the banks.

So I think it's a 2 percentage point to 3 percentage point increase compared to the last quarter in terms of the revenue contributions from the banks and other non-bank licensed financial management institutions. Regarding, the second question about the fee per loan recommendation. There is -- yeah, yes there was a slight increase -- a slight decrease in terms of the ASP but look into the -- look into the loan recommendation breakdown. It's almost the same I think the slight decrease also -- is also an evidence of the last Financial product available on all platform, that means the reducing demand from the financial service providers in terms of borrowers acquisition. So that's -- I think that fairly reflect the trend. Does that answer your question?

Julie Hou -- UBS Investment Bank -- Analyst

Yes, and how about the fourth quarter guidance on credit card ASP?

Daqing Ye -- Co-Founder, Chairman & Chief Executive Officer

The fourth -- the guidance on fourth -- the fourth quarter ASP, I think in terms of ASP for both credit card and the loan recommendation, we would expect. Credit card we may see slight increase in terms of the fee per card issued. For loans given the challenging environment and the declining trend of the product available on platform. So we would -- we would expect another slight decrease in term but not -- not much maybe one RMB also in terms of the long ASPs.

I hope that answer your question.

Julie Hou -- UBS Investment Bank -- Analyst

Yes. Yeah, thank you. Can I also ask a question on R&D expense. You mentioned that there is a pleasure decline in R&D expense due to cut in payroll costs. So do you have employee turnover in the third quarter and as this however continue to leverage technology to improve business, how should we project R&D expense going forward? Thank you.

Daqing Ye -- Co-Founder, Chairman & Chief Executive Officer

Hi Julie. Yeah, first I want to clarify a bit. I'm what we meant -- what I mentioned is that we cut down the acquisition cost in terms of the traffic acquisition, but for R&D the year-over-year trend is I think it's an increasing trend, increased by around 5% year-over-year, but we may also want to mention that among that R&D costs, we are trying to improve the R&D efficiency for the existing business and the shifting around 20% as David mentioned. R&D efforts and the resources to our new business initiatives. So overall, the R&D cost increased in the third quarter. Yeah, thank you.

Operator

The next question today comes from Wendy Chen of Goldman Sachs. Please go ahead.

Wendy Chen -- Goldman Sachs -- Analyst

Hi, thanks very much for taking my question. I have two questions, first one, I am following up on the comments that we have some capital acquisition cost for the quarter. Just wondering how much of this is coming from, let's say, by the cheaper price due to the muted advertising market or versus how we actually reduced demand because of our relatively slower loan growth for the quarter.

And my second question is about that the demand side from financial institute. So after the releasing of our app from to other app stores, how do we see the financial institute or activeness on our app after it's coming back. Thanks very much.

Daqing Ye -- Co-Founder, Chairman & Chief Executive Officer

Okay. Thank you, Wendy, I think, let me answer your second question first. So after our app is fully relaunched, so we are seeing the number of financial service providers on our platform is remain stable. The number remains, our financial institutions remains stable, but we are seeing less supplier of the financial products, mainly because the increasing tightening credit environment and -- both credit card issuers and the banks and other known Financial and number of financial institutions like they're enhanced their credit policy in terms of the user acquisition.

So this is how -- their demand in terms of -- their activities on our platform are still active, but in terms of the volume or the number of financial products available in our platform. It's a declining trend because they are changing, they are shifting, they are tightening the credit policy, they are just some financial service providers adjusted their funding source from the -- like P2Ps, they are shifting away from the retail funding to the institutional funding and also some other impact in the market also have some impact on the -- on activities, on our platform.

So regarding the traffic cost, in terms of the unit traffic costs of the user acquisition, for example the app downloads we are seeing a declining trend -- for instance, one OEM at store, we are seeing the acquisition cost is -- was half of the -- was half of the standing compared to the one quarter ago. The overall -- the traffic acquisition costs I think in the retail, financial services sector may decline in the past quarter, but to our case is that -- to our case is that -- this also impacted the supply side of our -- of our platform. That means the less of -- number of financial products available on our platforms.

So we are still focused on the return of investments of our business model, but given the tightening credit policy, given the less demand from the financial service providers in terms of our user acquisition. So it impacted our monetization capability. So although the unit cost of user acquisition is declining, but given the scale and given the efficiency level, we have that you can see the number of our sales, marketing efficiency.

Oscar Chen -- Director and Chief Financial Officer

Okay, so Wendy. I believe the last part of your question is about the app, we're listing a major app stores right and -- we are -- most of our apps resumed listing in Apple store or other OEMs like appstore end of Q2 and of course fully launched in Q3. And that's what happened, however, among the whole China Mobile sectors, there is some new initiatives going on like as of October 25. There is an app governance working group initiative, which is mostly under the supervision by [Indecipherable], which is the Industrial and the Information Ministry.

Basically, they have new rules in terms of how mobile applications or app and collect personal informations. In terms of mobile payment, online, wealth management and lending and also even for some general applications. We know, as of last week, thousands of apps got delisted by the -- this apps special governance working group including thousands of banks.

We know as of last week one of the top 10 bank major delisted that well. So we are fine, our app is not impacted by this new governing, new special governance initiative, but in the meantime we are also helping our financial institution partners that banks, credit card issuers -- we know some of the small banks, rural commercial bank or city commercial banks. They are also trying to figure out how to fully compliant with the recent app governance initiative. So we are working with some of the banks in terms of helping them, to enable them to manage their privacy and data governance better -- and helping them to relaunch their digital marketing initiative. So, yeah, definitely, we do see some short-term impact, but we believe as our financial institution partners manage their app digital marketing, data piracy and information security better we are able to help them into better grow the digital businesses next year.

Wendy Chen -- Goldman Sachs -- Analyst

Great. Thanks very much, Oscar and David. Very helpful.

Operator

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

Liting Lu -- Investor Relations

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 long holiday.

Daqing Ye -- Co-Founder, Chairman & Chief Executive Officer

Thank you.

Oscar Chen -- Director and Chief Financial Officer

Thank you, everyone.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Liting Lu -- Investor Relations

Daqing Ye -- Co-Founder, Chairman & Chief Executive Officer

Oscar Chen -- Director and Chief Financial Officer

John Cai -- Morgan Stanley -- Analyst

Julie Hou -- UBS Investment Bank -- Analyst

Wendy Chen -- Goldman Sachs -- Analyst

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