Noah Holdings Limited Announces Unaudited Financial Results for the Second Quarter of 2020

SHANGHAI, Aug. 25, 2020 /PRNewswire/ -- Noah Holdings Limited ("Noah" or the "Company") (NYSE: NOAH), a leading wealth and asset management service provider in China with a focus on global investment and asset allocation services for high net worth individuals and enterprises, today announced its unaudited financial results for the second quarter of 2020.

SECOND QUARTER 2020 FINANCIAL HIGHLIGHTS

• Net revenues for the second quarter of 2020 were RMB747.4 million (US$105.8 million), a 0.2% increase from the first quarter of 2020, while a 14.2% decrease from the corresponding period in 2019.

• Income from operations for the second quarter of 2020 was RMB319.5 million (US$45.2 million), a 24.7% increase from the first quarter of 2020, and a 26.9% increase from the corresponding period in 2019.

• Net income attributable to Noah shareholders for the second quarter of 2020 was RMB299.6 million (US$42.4 million), a 23.3% increase from the first quarter of 2020, and a 19.8% increase from the corresponding period in 2019.
• Non-GAAP^[1] net income attributable to Noah shareholders for the second quarter of 2020 was RMB307.2 million (US$43.5 million), a 20.1% increase from the first quarter of 2020, and a 16.7% increase from the corresponding period in 2019.

SECOND QUARTER 2020 OPERATIONAL UPDATES

Wealth Management Business

The Company offers financial products and provides value-added services to high net worth clients in China and overseas for its wealth management business. Noah primarily distributes private equity, public securities, credit and other products denominated in RMB and other currencies.

• Total number of registered clients as of June 30, 2020 was 332,157, a 17.1% increase from June 30, 2019, and a 3.4% increase from March 31, 2020.
• Total number of active clients^[2] which excluded mutual fund clients during the second quarter of 2020 was 3,367, a 42.8% decrease from June 30, 2019, and a 17.4% decrease from the first quarter of 2020, as we are continuing in the transition of offering more online mutual fund products to our clients. Counting in mutual funds clients, the total number of clients who transacted with us during the second quarter of 2020 was 14,703, a 48.7% increase from the second quarter of 2019, and a 12.6% decrease from the first quarter of 2020.
• Aggregate value of financial products distributed during the second quarter of 2020 was RMB21.4 billion (US$3.0 billion), a 12.0% decrease from the second quarter of 2019, and a 7.8% decrease from the first quarter of 2020.

• Coverage network in mainland China included 264 service centers covering 78 cities as of June 30, 2020, compared with 306 service centers covering 83 cities as of June 30, 2019 and 292 service centers covering 78 cities as of March 31, 2020. The decrease in the number of service centers and cities is primarily a result of consolidation of duplicate service centers in order to optimize costs and expenses.
• Number of relationship managers was 1,196 as of June 30, 2020, a 16.2% decrease from June 30, 2019, and a 2.0% decrease from March 31, 2020, primarily as a result of the Company's efforts to streamline operational human resources. The turnover rate of core "elite" relationship managers was 1.4%, compared with 1.0% as of March 31, 2020.

Asset Management Business

The Company's asset management business is conducted through Gopher Asset Management Co., Ltd. ("Gopher Asset Management"), a leading alternative multi-asset manager in China with overseas offices in Hong Kong, the United States and Canada. Gopher Asset Management develops and manages assets ranging from private equity, real estate, public securities, credit to multi-strategy investments denominated in Renminbi and other currencies. 

• Total assets under management as of June 30, 2020 were RMB159.4 billion (US$22.6 billion), a 1.4% decrease from March 31, 2020 and an 11.8% decrease from June 30, 2019.

Lending and Other Businesses

The Company's lending business utilizes an advanced risk-management system to assess and facilitate short-term loans to high quality borrowers, often secured with collateral. The total amount of loans originated during the second quarter of 2020 was RMB0.1 billion, compared with RMB2.8 billion for the corresponding period of 2019, due to the ongoing impact of COVID-19, and our voluntary reduction of loan origination. Other businesses include an online financial advisory platform.

Ms. Jingbo Wang, co-founder and CEO of Noah, said, "We are very pleased to report strong results for the second quarter of 2020: our Non-GAAP net income rose 20.1% from the first quarter, representing a second highest record since our listing on the NYSE; our operating margin increased to 42.7% due to improved operation efficiency and higher performance income in connection with an increased number of successful primary market exits and a booming A-share market. The transaction value of public securities accounted for 83.8% of the total volume this quarter, demonstrating our continued commitment to distributing more standardized products to our clients. In this quarter, the outstanding amount of onshore mutual funds distributed on our mobile APP Fund Smile exceeded RMB10 billion, and our parallel offshore mutual fund mobile APP iNoah was launched, which jointly form the formation of Noah's global mutual funds platform. We are confident that the momentum we've seen in the past four quarters since our transformation will continue." 

SECOND QUARTER 2020 FINANCIAL RESULTS

Net Revenues

Net revenues for the second quarter of 2020 were RMB747.4 million (US$105.8 million), a 14.2% decrease from the corresponding period in 2019, primarily driven by decreased one-time commissions and other service fees, partially offset by increased recurring service fees and performance-based income.

• Wealth Management Business
  - Net revenues from one-time commissions for the second quarter of 2020 were RMB126.0 million (US$17.8 million), a 57.0% decrease from the corresponding period in 2019, primarily due to the decrease of transaction value as well as the distribution of lower one-time commission rates products.
  - Net revenues from recurring service fees for the second quarter of 2020 were RMB310.3 million (US$43.9 million), a 15.5% increase from the corresponding period in 2019, mainly due to the service fees recognized upon liquidation of certain credit products with higher fee rates.
  - Net revenues from performance-based income for the second quarter of 2020 were RMB74.5 million (US$10.5 million), a 3,671.9% increase from the corresponding period of 2019, primarily due to a significant increase in performance-based income from public securities products as well as certain private equity products.
  - Net revenues from other service fees for the second quarter of 2020 were RMB32.0 million (US$4.5 million), a 48.1% decrease from the corresponding period in 2019, primarily due to less value-added services Noah offers to its high net worth clients during the COVID-19 epidemic.
  
  
• Asset Management Business
  - Net revenues from recurring service fees for the second quarter of 2020 were RMB164.0 million (US$23.2 million), relatively flat compared with the corresponding period in 2019.
  - Net revenues from performance-based income for the second quarter of 2020 were RMB16.1 million (US$2.3 million), a 184.9% increase from the corresponding period in 2019, primarily due to an increase in performance-based income from private equity products.
  
  
• Lending and Other Businesses
  - Net revenues for the second quarter of 2020 were RMB23.0 million (US$3.3 million), a 69.3% decrease from the corresponding period in 2019. The decrease was primarily due to reduced loan origination since the second half of 2019 as well as the ongoing impact of COVID-19.

Operating Costs and Expenses

Operating costs and expenses for the second quarter of 2020 were RMB427.9 million (US$60.6 million), a 30.9% decrease from the corresponding period in 2019. Operating costs and expenses primarily consisted of compensation and benefits of RMB330.8 million (US$46.8 million), selling expenses of RMB62.6 million (US$8.9 million), general and administrative expenses of RMB68.5 million (US$9.7 million), provision of credit losses of RMB1.9 million (US$0.3 million) and other operating expenses of RMB20.7 million (US$2.9 million).

• Operating costs and expenses for the wealth management business for the second quarter of 2020 were RMB346.2 million (US$49.0 million), a 30.2% decrease from the corresponding period in 2019, primarily due to a decrease in compensation and benefits and credit losses.
• Operating costs and expenses for the asset management business for the second quarter of 2020 were RMB80.9 million (US$11.4 million), a 4.0% decrease from the corresponding period in 2019, primarily due to a decrease in compensation and benefits and credit losses.
• Operating costs and expenses for the lending and other businesses for the second quarter of 2020 were RMB0.8 million (US$0.1 million), a 97.9% decrease from the corresponding period in 2019, primarily due to an increase in government grants in the amount of RMB14.6 million (US$2.1 million) .

Operating Margin

Operating margin for the second quarter of 2020 was 42.7%, increased from 28.9% for the corresponding period in 2019.

• Operating margin for the wealth management business for the second quarter of 2020 was 36.2%, compared with 20.8% for the corresponding period in 2019.
• Operating margin for the asset management business for the second quarter of 2020 was 55.5%, compared with 50.8% for the corresponding period in 2019.
• Income from operation for the lending and other businesses for the second quarter of 2020 was RMB22.1 million (US$3.1 million), compared with an operating income of RMB35.2 million for the corresponding period in 2019.

Investment Income

Investment income for the second quarter of 2020 was RMB4.7 million (US$0.7 million), compared with RMB11.8 million for the corresponding period in 2019.

Income Tax Expenses

Income tax expenses for the second quarter of 2020 were RMB77.8 million (US$11.0 million), a 15.1% increase from the corresponding period in 2019, primarily due to higher taxable income. 

Income from Equity in Affiliates

Income from equity in affiliates for the second quarter of 2020 was RMB40.7 million (US$5.8 million), a 41.2% increase from the corresponding period in 2019, primarily due to the increase of net income of the funds of funds we manage and invest in as the general partner or manager.

Net Income

• Net Income
  - Net income for the second quarter of 2020 was RMB301.9 million (US$42.7 million), an 18.7% increase from the corresponding period in 2019.
  - Net margin for the second quarter of 2020 was 40.4%, up from 29.2% for the corresponding period in 2019.
  - Net income attributable to Noah shareholders for the second quarter of 2020 was RMB299.6 million (US$42.4 million), a 19.8% increase from the corresponding period in 2019.
  - Net margin attributable to Noah shareholders for the second quarter of 2020 was 40.1%, up from 28.7% for the corresponding period in 2019.
  - Net income attributable to Noah shareholders per basic and diluted ADS for the second quarter of 2020 was RMB4.86 (US$0.69) and RMB4.84 (US$0.69), respectively, up from RMB4.09 and RMB4.04 respectively, for the corresponding period in 2019.
  
  
• Non-GAAP Net Income Attributable to Noah Shareholders
  - Non-GAAP net income attributable to Noah shareholders for the second quarter of 2020 was RMB307.2 million (US$43.5 million), a 16.7% increase from the corresponding period in 2019.
  - Non-GAAP net margin attributable to Noah shareholders for the second quarter of 2020 was 41.1%, compared with 30.2% for the corresponding period in 2019.
  - Non-GAAP net income attributable to Noah shareholders per diluted ADS for the second quarter of 2020 was RMB4.96 (US$0.70), up from RMB4.25 for the corresponding period in 2019.

Balance Sheet and Cash Flow

As of June 30, 2020, the Company had RMB4,170.7 million (US$590.3 million) in cash and cash equivalents, compared with RMB4,045.8 million as of March 31, 2020 and RMB2,873.7 million as of June 30, 2019.

Net cash outflow from the Company's operating activities during the second quarter of 2020 was RMB9.6 million (US$1.4 million), primarily due to payment of employee annual bonuses and annual tax filing in the second quarter.

Net cash inflow from the Company's investing activities during the second quarter of 2020 was RMB130.8 million (US$18.5 million), primarily due to disposal of various investments in the second quarter.

Net cash inflow from the Company's financing activities was RMB2.2 million (US$0.3 million) in the second quarter of 2020, primarily due to proceeds from issuance of ordinary shares upon exercise of stock options.

UPDATE ON CREDIT FUNDS

As the Company previously disclosed on July 8, 2019, August 29, 2019 and April 24, 2020, in connection with certain credit funds managed by an affiliate of Gopher Asset Management ("Gopher") providing supply chain financing involving companies related to Camsing International Holding Limited ("Camsing"), it is suspected that fraud has been committed by third parties related to those financings. A criminal investigation in China is ongoing, and Gopher is assisting PRC government authorities in their investigation, as well as pursuing all available actions, including filing civil litigations against the relevant parties, to protect investors ("Investor(s)") of the credit funds involved in Camsing incidents ("Camsing Products") who have outstanding economic interests in such products and to recover their assets. 

Furthermore, in order to share the growth of the Company with the Investors, to prevent distraction or diversion of its management resources from existing or potential claims, as well as to protect the best interests of its shareholders, the Company has decided to propose a settlement offer to the Investors.

Under the settlement plan, each Investor will be granted a certain number of restricted share units ("RSUs") of the Company, typically over a period of up to ten years, the vesting of which is subject to certain conditions and a schedule not exceeding fifteen years.  An investor accepting the offer shall agree to give up all his or her outstanding legal rights associated with Camsing Products and irrevocably release the Company and all its affiliated entities and individuals from any and all claims, known or unknown, that relate to the Camsing Products.  Upon vesting of the RSUs, the Investor will receive Class A ordinary shares of the Company. On August 24, 2020, this settlement plan was approved by the board of directors (the "Board") of the Company and a total number of new Class A ordinary shares not exceeding 1.6% of the share capital of the Company has been authorized to be issued each year for a consecutive ten years.

As of the date hereof, there are only claims initiated in China by several Investors against Gopher or its affiliates. These claims are at early stages and their impact on the Company remains unclear.

2020 FORECAST

The Company revises its non-GAAP net income attributable to Noah shareholders for the full year 2020 from the range of RMB800 million to RMB900 million, to the range of RMB900 million to RMB1billion. The revision is based on stronger than expected transaction value and performance income of public securities, improved operation efficiency and optimistic business estimation of the second half of 2020, despite the impact on overseas new insurance transactions from COVID-19 travel bans. This estimate reflects management's current business outlook and is subject to change.

CONFERENCE CALL

Senior management will host a combined English and Chinese language conference call to discuss the Company's second quarter 2020 unaudited financial results and recent business activities.

The conference call may be accessed with the following details:

A telephone replay will be available starting one hour after the end of the conference call until August 31, 2020 at +1-877-344-7529 (US Toll Free) or +1-412-317-0088 (International Toll). The replay access code is 10146791.

A live and archived webcast of the conference call will be available at Noah's investor relations website under the News & Events section at ir.noahgroup.com.

DISCUSSION OF NON-GAAP MEASURES

In addition to disclosing financial results prepared in accordance with U.S. GAAP, the Company's earnings release contains non-GAAP financial measures excluding the effects of all forms of share-based compensation, fair value changes of equity investments (unrealized), adjustment for sale of equity securities and net of tax impact, if any. See "Reconciliation of GAAP to Non-GAAP Results" at the end of this press release.

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 measures 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 the foregoing non-GAAP net income attributable to Noah shareholders and per diluted ADS and non-GAAP net margin attributable to Noah shareholders to supplement U.S. GAAP financial data. As such, the Company's management believes that the presentation of the non-GAAP financial measures provides important supplemental information to investors regarding financial and business trends relating to its results of operations in a manner consistent with that used by management.

ABOUT NOAH HOLDINGS LIMITED

Noah Holdings Limited (NYSE: NOAH) is a leading wealth and asset management service provider in China with a focus on high net worth individuals. In the first half of 2020, Noah distributed RMB44.6 billion (US$6.3 billion) of financial products. Through Gopher Asset Management, Noah had assets under management of RMB159.4 billion (US$22.6 billion) as of June 30, 2020.

Noah's wealth management business primarily distributes private equity, public securities, credit and insurance products denominated in RMB and other currencies. Noah delivers customized financial solutions to clients through a network of 1,196 relationship managers across 264 service centers in 78 cities in mainland China, and serves the international investment needs of its clients through offices in Hong Kong, Taiwan, United States, Canada, Australia and Singapore. The Company's wealth management business had 332,157 registered clients as of June 30, 2020. As a leading alternative multi-asset manager in China, Gopher Asset Management manages private equity, real estate, public securities, credit and multi-strategy investments denominated in Renminbi and other currencies. The Company also provides lending services and other businesses.

For more information, please visit Noah at ir.noahgroup.com.

FOREIGN CURRENCY TRANSLATION

In this announcement, the unaudited financial results for the second quarter of 2020 ended June 30, 2020 are stated in RMB. This announcement contains currency conversions of certain RMB amounts into US$ at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to US$ are made at a rate of RMB7.0651 to US$1.00, the effective noon buying rate for June 30, 2020 as set forth in the H.10 statistical release of the Federal Reserve Board.

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 outlook for 2020 and quotations from management in this announcement, as well as Noah's strategic and operational plans, contain forward-looking statements. Noah 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 Noah's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause Noah's actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: its goals and strategies; its future business development, financial condition and results of operations; the expected growth of the wealth management and asset management market in China and internationally; its expectations regarding demand for and market acceptance of the products it distributes; its expectations regarding keeping and strengthening its relationships with key clients; relevant government policies and regulations relating to its industries; its ability to attract and retain qualified employees; its ability to stay abreast of market trends and technological advances; its plans to invest in research and development to enhance its product choices and service offerings; competition in its industries in China and internationally; general economic and business conditions in China; and its ability to effectively protect its intellectual property rights and not to infringe on the intellectual property rights of others. Further information regarding these and other risks is included in Noah's filings with the U.S. Securities and Exchange Commission, including its annual reports on Form 20-F. All information provided in this press release and in the attachments is as of the date of this press release, and Noah 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 the applicable law.

-- FINANCIAL AND OPERATIONAL TABLES FOLLOW --

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