Jupai Reports Third Quarter 2018 Results

SHANGHAI, Dec. 7, 2018 /PRNewswire/ -- Jupai Holdings Limited ("Jupai" or the "Company") (NYSE: JP), a leading third-party wealth management service provider, focusing on distributing wealth management products and providing quality product advisory services to high-net-worth individuals in China, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2018.

THIRD QUARTER AND FIRST NINE MONTHS 2018 FINANCIAL HIGHLIGHTS

• Net revenues in the third quarter of 2018 were RMB310.6 million (US^[1]$45.2 million), a 29.5% decrease from the corresponding period in 2017. For the first nine months of 2018, net revenues were RMB1,187.4 million (US$172.9 million), a decrease of 4.7% from the same period in 2017.

• Income from operations in the third quarter of 2018 was RMB27.3 million (US$4.0 million), an 83.8% decrease from the corresponding period in 2017. For the first nine months of 2018, income from operations was RMB340.1 million (US$49.5 million), a decrease of 26.0% from the same period in 2017.
• Net income attributable to ordinary shareholders in the third quarter of 2018 was RMB1.7 million (US$0.2 million), a 98.5% decrease from the corresponding period in 2017. For the first nine months of 2018, net income attributable to ordinary shareholders was RMB205.4 million (US$29.9 million), a decrease of 35.6% from the same period in 2017.
• Non-GAAP^[2] net income attributable to ordinary shareholders in the third quarter of 2018 was RMB25.5 million (US$3.7 million), a 79.8% decrease from the corresponding period in 2017. For the first nine months of 2018, non-GAAP net income attributable to ordinary shareholders was RMB267.1 million (US$38.9 million), a decrease of 24.2% from the same period in 2017.

THIRD QUARTER AND FIRST NINE MONTHS 2018 OPERATIONAL UPDATES 

• Total number of active clients^[3] during the third quarter of 2018 was 1,982.
• The aggregate value of wealth management products distributed by the Company during the third quarter of 2018 was RMB5.3 billion (US$0.8 billion), a 56.3% decrease from the corresponding period in 2017. For the first nine months of 2018, the aggregate value of wealth management products distributed by the Company was RMB25.9 billion (US$3.8 billion), a 32.8% decrease from the corresponding period in 2017.

• Jupai's coverage network as of September 30, 2018 included 77 client centers covering 49 cities, as compared to 72 client centers covering 48 cities as of September 30, 2017.
• Total assets under management^[4] as of September 30, 2018 were RMB57.8 billion (US$8.4 billion), a 1.9% increase from June 30, 2018 and a 15.3% increase from September 30, 2017.

"China's wealth management industry has been facing strong headwinds over the past few quarters," said Mr. Jianda Ni, Jupai's chairman of the board and chief executive officer. "Since early 2018, we have seen investors becoming increasingly conservative due to an uncertain economic outlook in China and globally, a weakening real economy as a result of deleveraging and tightened regulations in the financial services industry. As a result, the aggregate value of wealth management products distributed by Jupai during the first nine months of 2018 decreased by 32.8% from that in the corresponding period in 2017 to RMB25.9 billion. However, as real estate companies continue to face rising cost of capital, we have benefited from our enhanced bargaining power. Our average one-time commission rate reached 2.8% in the third quarter, up from 2.2% in the corresponding period in 2017, reflecting Jupai's competitive advantage across the wealth management industry value chain."

"Leveraging our rich resources and network within the real estate industry, Jupai remained dedicated to developing high-quality real estate related products during the first nine months of 2018. Our total assets under management grew to RMB57.8 billion as of September 30, 2018, up 15.3% year-over-year. Looking ahead, in order to build a healthy long-term growth rate, we will put more effort into the development of proactively managed funds, further diversify the industries underlying our products, and continue to enhance the quality of our AUM, so as to create room for further growth in recurring management fees and performance fees."

"Although we expect China's wealth and asset management industry to remain in a transition period given the current macro-level deleveraging and changing regulatory landscape, we believe that China's decades of rapid economic expansion have laid the foundation for a vibrant future for our industry. Additionally, we are confident that investors will increasingly choose to work with well-known, reputable industry leaders such as Jupai during turbulent times in the capital markets. Jupai will continue to adapt to changes in the wealth and asset management industry in order to better manage our funds, strengthen our talent base, increase product diversity, and improve our risk control system. We look forward to building Jupai into the leading wealth and asset management brand in China and creating long-term value for our shareholders."

Ms. Min Liu, Jupai's chief financial officer, said, "While we face ongoing challenges in our industry, we will use this period of transition to increase operating efficiency through cost controls, personnel optimization and IT system enhancement. We believe that these measures will help us lay a solid foundation to expand our margins in the mid-to-long term."

THIRD QUARTER AND FIRST NINE MONTHS 2018 FINANCIAL RESULTS

Net Revenues

Net revenues for the third quarter of 2018 were RMB310.6 million (US$45.2 million), a 29.5% decrease from the corresponding period in 2017, primarily due to decreases in both one-time commissions and recurring service fees. Net revenues were RMB1,187.4 million (US$172.9 million) for the first nine months of 2018, a decrease of 4.7% from the same period in 2017.

• Net revenues from one-time commissions for the third quarter of 2018 were RMB147.7 million (US$21.5 million), a 44.3% decrease from the corresponding period in 2017, primarily as a result of a decrease in the aggregate value of wealth management products distributed by the Company. For the first nine months of 2018, net revenues from one-time commissions were RMB706.4 million (US$102.9 million), a decrease of 3.2% from the same period in 2017.
• Net revenues from recurring management fees for the third quarter of 2018 were RMB96.4 million (US$14.0 million), a 6.3% increase from the corresponding period in 2017, primarily due to an increase in the value of assets under management. The Company recognized RMB5.7 million (US$0.8 million) and RMB18.1 million carried interest in the third quarter of 2018 and 2017, respectively. For the first nine months of 2018, net revenues from recurring management fees were RMB341.0 million (US$49.6 million), a 35.2% increase from the same period in 2017. RMB49.7 million (US$7.2 million) and RMB41.6 million carried interest was recognized as part of Jupai's recurring management fees for the first nine months of 2018 and the same period in 2017, respectively.
• Net revenues from recurring service fees for the third quarter of 2018 were RMB10.1 million (US$1.5 million), a 53.3% decrease from the corresponding period in 2017, primarily because the Company provided ongoing services to fewer product suppliers. The Company recognized nil and RMB0.9 million variable performance fees in the third quarter of 2018 and 2017, respectively. For the first nine months of 2018, net revenues from recurring service fees were RMB36.6 million (US$5.3 million), a 54.9% decrease from the same period in 2017. The Company recognized RMB0.3 million (US$0.1 million) and RMB13.7 million variable performance fees for the first nine months of 2018 and the same period in 2017, respectively.
• Net revenues from other service fees for the third quarter of 2018 were RMB56.3 million (US$8.2 million), a 11.1% decrease from the corresponding period in 2017, primarily due to a decrease in sub-advisory fees collected from other companies. For the first nine months of 2018, net revenues from other service fees were RMB103.4 million (US$15.0 million), a decrease of 43.5% from the same period in 2017.

Starting from January 1, 2018, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), on a modified-retrospective basis. The adoption has no material impact on the Company's financial positions, results of operations, or cash flows.

Operating Costs and Expenses

Operating costs and expenses for the third quarter of 2018 were RMB283.3 million (US$41.2 million), an increase of 4.0% from the corresponding period in 2017. For the first nine months of 2018, operating costs and expenses were RMB847.3 million (US$123.4 million), an increase of 7.7% from the same period in 2017.

• Cost of revenues for the third quarter of 2018 was RMB155.8 million (US$22.7 million), a 10.3% decrease from the corresponding period in 2017, primarily due to a reduction in performance-based compensation as a result of a decline in the aggregate value of wealth management products distributed. For the first nine months of 2018, cost of revenues was RMB460.2 million (US$67.0 million), a decrease of 2.2% from the same period in 2017.
• Selling expenses for the third quarter of 2018 were RMB65.8 million (US$9.6 million), a 12.1% decrease from the corresponding period in 2017, primarily due to the decrease in marketing expenses. For the first nine months of 2018, selling expenses were RMB223.0 million (US$32.5 million), an increase of 11.6% from the same period in 2017.
• G&A expenses for the third quarter of 2018 were RMB62.5 million (US$9.1 million), a 36.2% increase from the corresponding period in 2017, mainly due to the increase in both the numbers of managerial and administrative personnel and their average compensation. For the first nine months of 2018, G&A expenses were RMB180.0 million (US$26.2 million), an increase of 25.4% from the same period in 2017.
• Other operating income (government subsidies) received by the Company in the third quarter of 2018 was RMB0.8 million (US$0.1 million), a 96.2% decrease from the corresponding period in 2017. For the first nine months of 2018, other operating income was RMB15.9 million (US$2.3 million), a decrease of 42.1% from the same period in 2017. Government subsidies were recorded when received, with their availability and amount dependent upon government administrative policies.

Operating margin for the third quarter of 2018 was 8.8%, compared to 38.2% for the corresponding period in 2017. For the first nine months of 2018, operating margin was 28.6%, compared to 36.9% for the same period in 2017.

Income tax expenses for the third quarter of 2018 were RMB8.0 million (US$1.2 million), an 83.1% decrease from the corresponding period in 2017. For the first nine months of 2018, income tax expenses were RMB96.4 million (US$14.0 million), a decrease of 20.8% from the same period in 2017, primarily due to a decrease in taxable income.

Loss from equity in affiliates for the third quarter of 2018 was RMB18.7 million (US$2.7 million), as compared to income from equity in affiliates of RMB0.2 million for the corresponding period in 2017. The loss was primarily attributable to RMB15.8 million (US$2.3 million) of impairment loss relating to the Company's investment in Shanghai Runju Financial Information Service Co., Ltd. ("Runju"), a non-controlling investee of the Company. As the industry regulations newly introduced on March 28, 2018 emphasize that asset management businesses conducted through the internet are subject to oversight from financial regulatory authorities, Runju has formulated a new business plan to adjust its business model and is in the transition of its business. Based on management's latest evaluation, impairment loss of RMB33.8 million (US$4.9 million) was recorded as loss from equity in affiliates for the nine months ended September 30, 2018, including RMB15.8 million (US$2.3 million) recorded in the third quarter of 2018. Future impairment analysis will be performed at each quarter end.

Net Income

- Net Income

• Net income attributable to ordinary shareholders for the third quarter of 2018 was RMB1.7 million (US$0.2 million), a 98.5% decrease from the corresponding period in 2017. For the first nine months of 2018, net income attributable to ordinary shareholders was RMB205.4 million (US$29.9 million), a decrease of 35.6% from the same period in 2017.
• Net margin attributable to ordinary shareholders for the third quarter of 2018 was 0.5%, as compared to 26.2% for the corresponding period in 2017. For the first nine months of 2018, net margin attributable to ordinary shareholders was 17.3%, compared to 25.6% for the same period in 2017.
• Net income attributable to ordinary shareholders per basic and diluted American depositary share ("ADS") for the third quarter of 2018 was RMB0.05 (US$0.01) and RMB0.05 (US$0.01), respectively, as compared to RMB3.54 and RMB3.39, respectively, for the corresponding period in 2017. For the first nine months of 2018, net income attributable to ordinary shareholders per basic and diluted ADS was RMB6.16 (US$0.90) and RMB5.85 (US$0.85), respectively, as compared to RMB9.83 and RMB9.43, respectively, for the same period in 2017.

- Non-GAAP Net Income

• Non-GAAP net income attributable to ordinary shareholders for the third quarter of 2018 was RMB25.5 million (US$3.7 million), a 79.8% decrease from the corresponding period in 2017. For the first nine months of 2018, non-GAAP net income attributable to ordinary shareholders was RMB267.1 million (US$38.9 million), a 24.2% decrease from the same period in 2017.
• Non-GAAP net margin attributable to ordinary shareholders for the third quarter of 2018 was 8.2%, as compared to 28.6% for the corresponding period in 2017. For the first nine months of 2018, non-GAAP net margin attributable to ordinary shareholders was 22.5%, as compared to 28.3% for the same period in 2017.
• Non-GAAP net income attributable to ordinary shareholders per diluted ADS for the third quarter of 2018 was RMB0.73 (US$0.11), as compared to RMB3.69 for the corresponding period in 2017. For the first nine months of 2018, non-GAAP net income attributable to ordinary shareholders per diluted ADS was RMB7.60 (US$1.11), as compared to RMB10.42 for the same period in 2017.

Balance Sheet and Cash Flow

As of September 30, 2018, the Company had RMB740.7 million (US$107.8 million) in cash and cash equivalents, compared to RMB1,527.8 million as of December 31, 2017.

Net cash used in operating activities during the third quarter of 2018 was RMB104.7 million (US$15.2 million). For the first nine months of 2018, net cash used in operating activities was RMB115.9 million (US$16.9 million).

Net cash used in investing activities during the third quarter of 2018 was RMB217.6 million (US$31.7 million). For the first nine months of 2018, net cash used in investing activities was RMB550.0 million (US$80.1 million).

Net cash used in financing activities during the third quarter of 2018 was RMB17.5 million (US$2.5 million). For the first nine months of 2018, net cash used in financing activities was RMB121.2 million (US$17.7 million).

CONFERENCE CALL

Jupai's management will host an earnings conference call on December 7, 2018 at 7:00 a.m. U.S. Eastern Time (8:00 p.m. Beijing/Hong Kong time).

Dial-in details for the earnings conference call are as follows:

Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.

A replay of the conference call may be accessed by phone at the following numbers until December 15, 2018:

Additionally, a live and archived webcast will be available at http://jupai.investorroom.com.

DISCUSSION OF NON-GAAP FINANCIAL MEASURES

In addition to disclosing financial results prepared in accordance with U.S. GAAP, the Company's earnings release contains non-GAAP financial measures that exclude the effects of all forms of share-based compensation, amortization of intangible assets related to acquisition and impairment loss of investment in affiliates. The reconciliation of these non-GAAP financial measures to the nearest GAAP measures as set forth in the table captioned "Reconciliation of GAAP to Non-GAAP Results" below.

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for financial measures prepared in accordance with U.S. GAAP. The financial results reported in accordance with U.S. GAAP and reconciliation of GAAP to non-GAAP results should be carefully evaluated. The non-GAAP financial measure used by the Company may be prepared differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

When evaluating the Company's operating performance in the periods presented, management reviewed non-GAAP net income results reflecting adjustments to exclude the impacts of share-based compensation, amortization of intangible assets related to acquisition and impairment loss of investment in affiliates, to supplement U.S. GAAP financial data. As such, the Company believes that the presentation of the non-GAAP net income attributable to ordinary shareholders, non-GAAP net income attributable to ordinary shares per diluted ADS and non-GAAP net margin attributable to ordinary shareholders provides important supplemental information to investors regarding financial and business trends relating to the Company's financial condition and results of operations in a manner consistent with that used by management. Pursuant to U.S. GAAP, the Company recognized significant amounts of expenses for the restricted shares and share options, amortization of intangible assets related to acquisition and impairment loss of investment in affiliates in the periods presented. The Company utilized the non-GAAP financial results to make financial results comparable period to period and to better understand its historical business operations.

ABOUT JUPAI HOLDINGS LIMITED

Jupai Holdings Limited ("Jupai") (NYSE: JP) is a leading third-party wealth management service provider focusing on distributing wealth management products and providing quality product advisory services to high-net-worth individuals in China. Jupai's comprehensive and personalized client service and broad range of carefully selected third-party and self-developed products have made it a trusted brand among its clients. Jupai maintains extensive and targeted coverage of China's high-net-worth population.

For more information, please visit http://jupai.investorroom.com.

SAFE HARBOR STATEMENT

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Jupai's strategic and operational plans, contain forward-looking statements. Jupai may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Jupai's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the goals and strategies of the Company and the Company's ability to manage its growth and implement its business strategies; future business development, financial condition and results of operations of the Company; condition of the wealth management market in China and internationally; the demand for and market acceptance of the products the Company distributes; the Company's ability to maintain and further grow its active high-net-worth client base and maintain or increase the amount of investment by clients; developments in relevant government policies and regulations relating to the Company's industry and the Company's ability to comply with those policies and regulations; the Company's ability to attract and retain quality employees; the Company's ability to adapt to potential uncertainties in China's real estate industry and stay abreast of market trends and technological advances; the results of the Company's investments in research and development to enhance its product choices and service offerings; general economic and business conditions in China; and the Company's ability to protect its reputation and enhance its brand recognition. Further information regarding these and other risks is included in Jupai's filings with the U.S. Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of this press release, and Jupai does not undertake any obligation to update any such information, including forward-looking statements, as a result of new information, future events or otherwise, except as required under applicable law.

-- FINANCIAL AND OPERATIONAL TABLES FOLLOW --

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