Jupai Reports Third Quarter 2019 Results

SHANGHAI, Nov. 22, 2019 /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, 2019.

THIRD QUARTER AND FIRST NINE MONTHS 2019 FINANCIAL HIGHLIGHTS

• Net revenues in the third quarter of 2019 were RMB182.1 million (US$^[1]25.5 million), a decrease of 41.4% from the corresponding period in 2018. For the first nine months of 2019, net revenues were RMB649.0 million (US$90.8 million), a decrease of 45.3% from the same period in 2018.

• Loss from operations in the third quarter of 2019 was RMB40.2 million (US$5.6 million), as compared to income from operations of RMB27.3 million for the corresponding period in 2018. For the first nine months of 2019, loss from operations was RMB107.2 million (US$15.0 million), as compared to income from operations of RMB340.1 million for the same period in 2018.
• Net loss attributable to ordinary shareholders in the third quarter of 2019 was RMB47.9 million (US$6.7 million), as compared to net income attributable to ordinary shareholders of RMB1.7 million for the corresponding period in 2018. For the first nine months of 2019, net loss attributable to ordinary shareholders was RMB134.5 million (US$18.8 million), as compared to net income attributable to ordinary shareholders of RMB205.4 million for the same period in 2018.
• Non-GAAP^[2] net loss attributable to ordinary shareholders in the third quarter of 2019 was RMB45.5 million (US$6.4 million), as compared to non-GAAP net income attributable to ordinary shareholders of RMB25.5 million for the corresponding period in 2018. For the first nine months of 2019, non-GAAP net loss attributable to ordinary shareholders was RMB126.8 million (US$17.7 million), as compared to non-GAAP net income attributable to ordinary shareholders of RMB267.1 million for the same period in 2018.

THIRD QUARTER AND FIRST NINE MONTHS 2019 OPERATIONAL UPDATES 

• Total number of active clients^[3] during the third quarter of 2019 was 1,058.
• The aggregate value of wealth management products distributed by the Company during the third quarter of 2019 was RMB2.7 billion (US$0.4 billion), a 49.5% decrease from the corresponding period in 2018. For the first nine months of 2019, the aggregate value of wealth management products distributed by the Company was RMB7.9 billion (US$1.1 billion), a 69.4% decrease from the corresponding period in 2018.

• Jupai's coverage network as of September 30, 2019 included 54 client centers covering 44 cities, as compared to 77 client centers covering 49 cities as of September 30, 2018.
• Total assets under management^[4] as of September 30, 2019 were RMB45.1 billion (US$6.3 billion), a 21.9% decrease from September 30, 2018.

"We saw improved operating performance in the third quarter of 2019 even as the market environment remained challenging," said Mr. Jianda Ni, Jupai's chairman of the board and chief executive officer. "Concerns over a slowdown in overall economic growth and international trade conflicts continue to impact investor confidence. However, the aggregate value of wealth management products distributed by Jupai during the third quarter of 2019 increased quarter-over-quarter by 6% from RMB2.5 billion to RMB2.7 billion, as our wealth management products backed by high-quality real estate projects gained traction in the market. In addition, our bottom line results for the quarter were enhanced by our ongoing cost control efforts."

"We remain cautiously optimistic about Jupai's outlook for the coming quarters as we have seen a gradual loosening of restrictions on privately-offered funds over the past several months. Looking ahead, we remain dedicated to executing on our three strategies to expand Jupai's market share. Firstly, leveraging our superior industry expertise, we will continue to develop high-quality real estate equity products with attractive risk-return profiles. Secondly, we will further enhance our risk control systems in order to increase investor confidence. Thirdly, we will seek potential growth opportunities in our overseas business."

Ms. Min Liu, Jupai's chief financial officer, said, "Jupai succeeded in reducing our operating expenses on a sequential basis in the third quarter of 2019. In particular, we lowered our cost of revenue and G&A expenses through streamlining operations and enhancing operating efficiency." 

THIRD QUARTER AND FIRST NINE MONTHS 2019 FINANCIAL RESULTS

Net Revenues

Net revenues for the third quarter of 2019 were RMB182.1 million (US$25.5 million), a 41.4% decrease from the corresponding period in 2018, primarily due to decreases in both one-time commissions and recurring management fees. Net revenues were RMB649.0 million (US$90.8 million) for the first nine months of 2019, a decrease of 45.3% from the same period in 2018.

• Net revenues from one-time commissions for the third quarter of 2019 were RMB102.7 million (US$14.4 million), a 30.5% decrease from the corresponding period in 2018, 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 2019, net revenues from one-time commissions were RMB247.8 million (US$34.7 million), a decrease of 64.9% from the same period in 2018.
• Net revenues from recurring management fees for the third quarter of 2019 were RMB50.1 million (US$7.0 million), a 48.0% decrease from the corresponding period in 2018, primarily due to the decrease in the value of assets under management. RMB17.4 million (US$2.4 million) and RMB5.7 million carried interest were recognized as part of Jupai's recurring management fees in the third quarter of 2019 and 2018, respectively. For the first nine months of 2019, net revenues from recurring management fees were RMB310.1 million (US$43.4 million), a 9.1% decrease from the same period in 2018. RMB156.0 million (US$21.8 million) and RMB49.7 million carried interest was recognized as part of Jupai's recurring management fees for the first nine months of 2019 and the same period in 2018, respectively.
• Net revenues from recurring service fees for the third quarter of 2019 were RMB29.3 million (US$4.1 million), a 189.2% increase from the corresponding period in 2018, primarily because the Company provided ongoing services to more product suppliers. The Company recognized RMB1.8 million (US$0.3 million) and nil variable performance fees in the third quarter of 2019 and 2018, respectively. For the first nine months of 2019, net revenues from recurring service fees were RMB77.2 million (US$10.8 million), a 110.8% increase from the same period in 2018. The Company recognized RMB1.8 million (US$0.3 million) and RMB0.3 million variable performance fees for the first nine months of 2019 and the same period in 2018, respectively.
• Net revenues from other service fees for the third quarter of 2019 were nil, a 100.0% decrease from the corresponding period in 2018, primarily due to no sub-advisory service provided to other companies. For the first nine months of 2019, net revenues from other service fees were RMB13.9 million (US$1.9 million), a decrease of 86.5% from the same period in 2018.

Operating Costs and Expenses

Operating costs and expenses for the third quarter of 2019 were RMB222.3 million (US$31.1 million), a 21.5% decrease from the corresponding period in 2018. For the first nine months of 2019, operating costs and expenses were RMB756.2 million (US$105.8 million), a decrease of 10.8% from the same period in 2018.

• Cost of revenues for the third quarter of 2019 was RMB105.9 million (US$14.8 million), a 32.0% decrease from the corresponding period in 2018, primarily due to decreased compensation to wealth management advisors and client managers, as a result of the decrease in the aggregate value of wealth management products distributed by the Company and cost control measures the Company undertook. For the first nine months of 2019, cost of revenues was RMB390.3 million (US$54.6 million), a decrease of 15.2% from the same period in 2018.
• Selling expenses for the third quarter of 2019 were RMB52.9 million (US$7.4 million), a 19.7% decrease from the corresponding period in 2018, primarily due to the decrease in marketing and promotion expenses as a result of cost control. For the first nine months of 2019, selling expenses were RMB156.3 million (US$21.9 million), a decrease of 29.9% from the same period in 2018.
• General and administrative expenses for the third quarter of 2019 were RMB68.0 million (US$9.5 million), an 8.9% increase from the corresponding period in 2018. For the first nine months of 2019, general and administrative expenses were RMB219.7 million (US$30.7 million), an increase of 22.1% from the same period in 2018, mainly due to additional provision for doubtful accounts and the increase in service fees, net off by the decrease in payroll expenses.
• Other operating income (government subsidies) received by the Company in the third quarter of 2019 was RMB4.6 million (US$0.6 million), a 441.4% increase from the corresponding period in 2018. For the first nine months of 2019, other operating income was RMB10.2 million (US$1.4 million), a decrease of 35.9% from the same period in 2018. Government subsidies were recorded when received, with their availability and amount dependent upon government policies.

Operating margin for the third quarter of 2019 was -22.1%, compared to 8.8% for the corresponding period in 2018. For the first nine months of 2019, operating margin was -16.5%, compared to 28.6% for the same period in 2018.

Income tax expenses for the third quarter of 2019 were RMB10.3 million (US$1.4 million), a 28.3% increase from the corresponding period in 2018, due to recording of valuation allowance of RMB 4.6 million. For the first nine months of 2019, income tax expenses were RMB33.1 million (US$4.6 million), a decrease of 65.7% from the same period in 2018, primarily due to a decrease in taxable income.

Net Income

• Net Income

- Net loss attributable to ordinary shareholders for the third quarter of 2019 was RMB47.9 million (US$6.7 million), as compared to net income attributable to ordinary shareholders of RMB1.7 million for the corresponding period in 2018. For the first nine months of 2019, net loss attributable to ordinary shareholders was RMB134.5 million (US$18.8 million), as compared to net income attributable to ordinary shareholders of RMB205.4 million for the same period in 2018.
- Net margin attributable to ordinary shareholders for the third quarter of 2019 was -26.3%, compared to 0.5% for the corresponding period in 2018. For the first nine months of 2019, net margin attributable to ordinary shareholders was -20.7%, compared to 17.3% for the same period in 2018.
- Net loss attributable to ordinary shareholders per basic and diluted American depositary share ("ADS") for the third quarter of 2019 were RMB1.42 (US$0.20) and RMB1.42 (US$0.20), respectively, as compared to net income attributable to ordinary shareholders per basic and diluted ADS of RMB0.05 and RMB0.05, respectively, for the corresponding period in 2018. For the first nine months of 2019, net loss attributable to ordinary shareholders per basic and diluted ADS was RMB4.00 (US$0.56) and RMB4.00 (US$0.56), respectively, as compared to net income attributable to ordinary shareholders per basic and diluted ADS of RMB6.16 and RMB5.85, respectively, for the same period in 2018.

• Non-GAAP Net Income

- Non-GAAP net loss attributable to ordinary shareholders for the third quarter of 2019 was RMB45.5 million (US$6.4 million), compared to non-GAAP net income attributable to ordinary shareholders of RMB25.5 million for the corresponding period in 2018. For the first nine months of 2019, non-GAAP net loss attributable to ordinary shareholders was RMB126.8 million (US$17.7 million), as compared to non-GAAP net income attributable to ordinary shareholders of RMB267.1 million for the same period in 2018.
- Non-GAAP net margin attributable to ordinary shareholders for the third quarter of 2019 was -25.0%, as compared to 8.2% for the corresponding period in 2018. For the first nine months of 2019, non-GAAP net margin attributable to ordinary shareholders was -19.5%, as compared to 22.5% for the same period in 2018.
- Non-GAAP net loss attributable to ordinary shareholders per diluted ADS for the third quarter of 2019 was RMB1.35 (US$0.19), as compared to non-GAAP net income attributable to ordinary shareholders per diluted ADS of RMB0.73 for the corresponding period in 2018. For the first nine months of 2019, non-GAAP net loss attributable to ordinary shareholders per diluted ADS was RMB3.77 (US$0.53), as compared to non-GAAP net income attributable to ordinary shareholders per diluted ADS of RMB7.60 for the same period in 2018.

Balance Sheet and Cash Flow

As of September 30, 2019, the Company had RMB859.7 million (US$120.3 million) in cash, cash equivalents and restricted cash, compared to RMB1,302.6 million as of December 31, 2018.

Net cash used in operating activities during the third quarter of 2019 was RMB53.1 million (US$7.4 million). For the first nine months of 2019, net cash used in operating activities was RMB177.6 million (US$24.9 million).

Net cash used in investing activities during the third quarter of 2019 was RMB206.5 million (US$28.9 million). For the first nine months of 2019, net cash used in investing activities was RMB265.3 million (US$37.1 million).

Net cash provided by financing activities during the third quarter of 2019 was nil. For the first nine months of 2019, net cash provided by financing activities was RMB29.6 thousand (US$4.1 thousand).

CONFERENCE CALL

Jupai's management will host an earnings conference call on November 22, 2019 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 November 30, 2019:

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

DISCUSSION OF RECENTLY ADOPTED ACCOUNTING STANDARD

Starting from January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use ("ROU") assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. The Company also elected the package of practical expedients, which among other things, does not require reassessment of lease classification.

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 and amortization of intangible assets related to acquisition. 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, share options and amortization of intangible assets related to acquisition and impairment loss of investment in affiliates. 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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