LexinFintech Holdings Ltd.

Thank you for standing by. Welcome to Le Sing Fintech 4th Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Jamie Wang, IR Manager. Thank you. Please go ahead.

Thank you, Desmond. Hello, everyone. Welcome to Lilxing's fourth quarter and full year 2022 earnings conference call. With us on the line today are our CEO, Jay Hsiao, President Jared Wu, and CFO James Chung. Before we get started, I'd like to remind you that the call and presentation contain business outlook and forward-looking statements, which are based on the assumptions as of today. The actual results might differ materially, and we undertake no obligation to update any forward-looking statements. Jay will first provide an update on our overall performance. James will cover the financial results in more detail. And lastly, Jared will then discuss risk management. I'll now turn the call over to our CEO, Jay. His remarks will be in English and the, sorry, his remarks will be in Chinese, and the English translation will follow. Jay.

Hello, everyone. I am very happy to share with you the performance of our fourth quarter of 2022. In the fourth quarter of 2022, the whole country experienced a turning point in the epidemic, which brought a lot of pressure to the macroeconomic economy. Although so, we insist on taking risks as the center, driving decision-making with data, and continuing to advance detailed operations. This has allowed us to successfully overcome the difficulties and achieve good results. In the fourth quarter, the transaction amount reached 5.61 billion yuan, which is equivalent to a growth of 29 billion yuan, and the management volume was 99.6 billion yuan. The same growth of 16% revenue 3.1 billion the same growth of 38.7% net profit 300 million the same growth of 17.9% asset quality stable down capital costs from three quarters of the seven down to 6.8% profit and loss continue to increase net profit from a quarter of 4.8% steady rise to four quarters of 9.9% from four quarters of The data shows that Le Xin has been in steady growth for three consecutive seasons and has realized a slight reversal.

Good morning and good evening, everyone. It's my pleasure to see you again. In the fourth quarter of 2022, the COVID situation in China underwent a major turning point, bringing considerable pressure to the Chinese economy. But despite the such pressure, we were able to achieve satisfactory results by rigorously adhering to a strategy of prioritizing risk management. making data-driven decisions, and continuously focusing on improving and refining our operations. Our loan originations for the past quarter reached $56.1 billion, representing an increase of 29% year-over-year, with total outstanding loan balance reaching $99.6 billion as of December 31, 2022, representing an increase of 1616% year-over-year. Total revenue reached 3.1 billion, representing an increase of 38.7% year over year, with net income reaching 301 million, representing an increase of 17.9% year over year. Our asset quality continues to steadily improve. In addition, funding costs decreased to 6.8% from 7.0 in the third quarter, Our net profit margin increased substantially from 4.8% in the first quarter of 2022 to 9.9% this past quarter. From our fourth quarter numbers, we can see that Lixing has clearly produced three consecutive quarters of steadily improving profitability, realizing a V-shaped recovery.

Specifically, the performance of the design team has three highlights. The quality of the assets continues to improve, and the consumer scene business is growing.

To be more specific, there were three main highlights for the past quarter. First, the continued improvement in asset quality. Second, the ability of our installment e-commerce platform service business to deliver growth against a weak backdrop. And breakthroughs in our tech empowerment service sector, which achieved its first quarterly profit And third, notable results in reducing operating costs and increasing efficiency.

On asset quality, although we were affected by the COVID outbreak,

Lexin was able to continue our stable and upward trajectory in asset quality, which was accomplished through our focus on continuous improvement to our risk management capabilities and our progress in refining our operations. And this can be seen from our existing and our new customers.

For Laoke, we mainly took two-way measures. First, to increase the ability of high-quality users to identify users. In terms of data, deep-dive data on storage user information and Lexin ecosystem This data is targeted to improve the recognition capability of different customer groups in detail, especially to continue to explore the value of real data in the central bank. In-depth construction includes user risks, income, assets, debt, and other multi-dimensional characteristics. Fully enhance user image clarity. On the model application, more than 10 data ecological joint modeling is completed to establish a value evaluation framework. The improvement of the recognition capability of high-quality users allows us to further increase the investment in this part of the customer group, and at the same time accelerate

For existing customers, we took the following two steps. First, we improved our ability to identify prime customers. From our data and through deeper data mining of the information available with Lushin's ecosystem, we refined our ability to identify different customer segments. In particular, we continue to data mine and obtain valuable information from the PBOC's credit data. This allowed us to more deeply and comprehensively to improve our customer risk assessment related profiles in multiple dimensions, including customer risk profile, income level information, asset information, and existing customer liability. In the application of our models, we were able to finalize the joint modeling of over 10 data loops, building an accurate ROI evaluation framework in the progress. Improvements in our ability to identify prime customers allowed us to dedicate greater resources towards serving this customer segment, while also expediting the reduction of high-risk segments.

We adopted a multi-faceted economic operation strategy based on user insight and continuous improvement of data and model capabilities. Second, we applied our 千人千面 policy, which refines our operating strategy by improving our ability to identify different customer groups and segments via more accurate segmentation capabilities.

enabling us to dig deeper to meet and satisfy the needs of different customer cohorts and improve our customer satisfaction rates and customer retention.

In the fourth quarter,

loan contributions from our prime customers increased by 60% year-over-year, while loan contributions from our high-risk customers decreased by 13%. So, prime customers as a percentage of loan increased from 72% in the fourth quarter of 2021 to 82% in the fourth quarter of 2022. For the new customers, we continue to improve the data and model applications.

For our new customers, we continue to expand our data set and the use of our models. We have built a complete end-to-end RTA processing model

which has significantly improved our post-customer acquisition conversion rate by over 50%. We have improved efficiency and accuracy of our customer identification capabilities by 20% through pre-landing and in-landing channel model iterations. We have also constructed a new operational matrix to continuously increase and improve the retention rate and the activity rate for both new and existing customers.

In the fourth quarter, the percentage of new Prime customers with approved credit lines increased by 18.2%, with average ticket sizes for new customers increasing by 16.7 quarter over quarter.

Online advertising costs to convert credit lines into active borrowers from the time of granting of the credit line to the time of the use of credit decreased by 25.9% quarter over quarter for prime customers.

The market share of Zeng Chile has reached 1.4 billion in the fourth quarter, which is 40.2% higher than before. The new trend of young people has become a source of growth. In addition to 3C, the growth of beauty, clothing, sports, and young people is obvious. This has further strengthened our scene and customer base. In 2022, the number of Zeng Chile's annual product brands will increase by 103%, and the price of products will increase by 39%.

The second highlight was the ability of our installment e-commerce platform service business to deliver growth against a weak backdrop and outbreak in our tech empowerment service sector, which achieved its first quarterly profit. Our installment e-commerce platform service business, under a weak backdrop of poor overall consumption throughout the year last year, was able to achieve $1.4 billion in GMV for the fourth quarter, an increase of 40.2% year-over-year. Younger, more fashion-focused, non-electronic devices consumption scenarios such as cosmetics, apparel, and footwear favored by younger demographics became our main driver, demonstrating notable increases in growth and further enhancing our competitive advantages in consumption scenarios and consumer demographics in the process. For the year 2022, our e-commerce platform, FenQile, total number of merchants grew by 103% year-over-year, with average ticket prices increasing by 39% year-over-year.

In addition, the financial literacy business of small and medium-sized banks has also undergone obvious progress. Financial literacy has implemented digital transformation for financial institutions to provide product construction, In addition, our tech empowerment service business

designed for small and medium-sized banks, has also made significant progress. Our service enables the digital transformation of our financial institutional partners by providing five core services. Product development, customer acquisition channel co-building, joint risk management, customer lifecycle management, and intelligent customer services. enabling our partners to achieve breakthroughs in their businesses. Our partners have been steadily growing wherever the cooperation has come online, and all new launches in the fourth quarter have progressed to scale, enabling our tech empowerment service business to achieve profitability for the quarter.

These two businesses are an important part of Lexin's business ecosystem, and they work together with the consumer finance industry. These two businesses are both critical components of our ecosystem, forming a mutually reinforcing cycle and linking with our main credit facilitation business.

Each business has also achieved its own respective breakthroughs in the fourth quarter and can be expected to become Lushin's new growth driver in the future. Lushin's ecosystem, which is integrated with different businesses in various consumption scenarios, as well as technological capabilities, will in time become our core competitive advantage, differentiating ourselves from our competition and establishing our sustainable long-term core competitive advantages.

The third bright point is that the work of reducing cost-effectiveness has achieved obvious results. In the fourth quarter, the operating cost was 6.6 billion yuan, which decreased by 2.1%, especially the management cost dropped to 97.6 million yuan, which decreased by 7%. The total cost accounted for the average management balance ratio, which continued to decline from Q2 2022. In addition, we are promoting the rapid organization construction in the fourth quarter. Part of the organizational structure is reorganized, and part of the energy is depleted. Improving organizational activity has further improved organizational efficiency.

The third highlight is related to the notable results in reducing operating costs and increasing efficiency. Operational expenses for the fourth quarter were RMB $660 million, down 2.1% sequentially. In particular, G&A expenses decreased by 7% quarter over quarter to about RMB $97 million. Total expenses as a percentage of the outstanding loan balance have continued to decline. second quarter of 2022. In addition, in the fourth quarter, we restructured some functions and downsized the headcount to further stimulate the overall vitality of the company and to improve organizational efficiency.

In addition, in the fourth quarter, we restructured some functions and downsized the headcount to further stimulate the overall vitality of the company and to improve organizational efficiency. smart business, engine digitalization, and naturalization capabilities have been integrated into the key parts of business operations and corporate operations. In terms of system capabilities, we will further apply the key points of moving indicators and the natural sound system to trade and wind control, build a unified event management platform, cover all internal and external products and technical events, and greatly enhance the data perception capabilities. In terms of model applications, we will continue to improve the model system of the user's lifetime cycle, Behind the aforementioned operational achievement is the continued enhancement of our data and technological capabilities.

RMB expenses for the whole quarter was approximately RMB 136 million, which represents a leading position in the industry. Xixing's unique smart business engine has integrated digital and intelligent capabilities into every key aspect of our daily operation and enterprise. Specifically, in terms of system capabilities, we further applied the indicator variation and intelligent attribution system to the core nodes of our transaction and risk management systems. We built a unified event management platform covering all internal and external events related to product and technology, greatly improving our data efficiency and accuracy. In terms of model applications, we continue to improve our lifecycle model and has developed and iterated more than 30 targeted marketing models, among which our model matrix of customer intent and customer reaction is able to cover scales of 10 million users per month and has achieved meaningful results. For specific customer groups, after using our models, order rates have increased by 30%, with our pool and profits increasing by over 50%.

Finally, I would like to talk about my enthusiasm in the field of corporate social responsibility. In the first half of 2022, we launched the small shop fire plan. Through a series of measures to alleviate the financial difficulties of small and medium-sized enterprises, we continued to assist in the construction of small and medium-sized loans of 5 billion yuan. In February this year, we further launched the village and consumer recovery action. By promoting consumer consumption, promoting business growth, promoting small and medium-sized enterprises recovery in three aspects, nine measures to promote consumer recovery, In addition, in terms of consumer protection, we have recently set up a 24-hour customer service security special line to continuously increase consumer profitability.

Finally, I would like to update you on Lexin's corporate social responsibility initiatives. In the first half of 2022, we launched a specific program called Xiao Dian Yan Huo to help relieve small and micro enterprises with their cash liquidity problems. In the first quarter, to continue to provide assistance, enabling the total amount of small and micro loans to reach $5 billion for the quarter. In February of this year, a follow-up program called ,, which aims to promote a recovery in consumption through our nine initiatives and three directives, promoting individual consumption facilitating merchant growth, and enabling the recovery of small and micro-sized businesses. In addition, to better protect customers, we are currently instituting a 24-7 customer protection hotline, which will also further enhance our customer satisfaction rate.

In the future, domestic consumption will gradually accelerate, and the economic environment will improve. We are optimistic about the growth of our business this year. In 2023, we will focus on the key goals of sustainable profit and growth as a company. Specifically, it includes the following four aspects of work. First, to continue to strengthen the supply and supply system and support human resources construction and further improve asset quality. Second, to focus on the detailed operation of consumer finance main business. Third, to strengthen the identification and operation of high-quality users. Fourth, to adjust the strategy according to the economic situation. Fifth, to catch up on the recovery of consumption. Going forward, we see an accelerated pace

of recovery for domestic consumption and improve macroeconomic environment. So, we remain cautiously optimistic about the prospects for business growth this year. In 2023, we will make sustainable profitability, which is Lushin's main objective. Four concrete steps which we'll take towards this goal are, first, is to continue to strengthen our risk management systems and build our core capabilities. further improving our asset quality in the process. Second, is to focus on refining our customer operations by improving our ability to identify and manage our prime customers from our existing ones. Adjusting policies for our new customers based on the economic conditions, capturing the opportunities presented by the consumption recovery through investing in customer acquisition at the opportune time. continuing to both improve our customer quality and quantity, and improving asset quality in the process. Third, is to strengthen Leqing's unique business ecosystem, including online consumer finance, offline , installment e-commerce platform service, tech empowerment service, and more, allowing our multiple and diverse businesses to become mutually supportive and mutually reinforcing. generating a virtuous cycle. Fourth is to continue to reduce costs and improve efficiency, increasing our ability to generate sustainable profits in the process.

In the first quarter,

In the first quarter of 2023, our total loan balance exceeded RMB 100 billion, marking another milestone in the company's growth and development. With the exception of the beginning of the first quarter, which was negatively impacted by the tail end of the COVID outbreak, All risk management-related metrics have started to recover since February, and we expect both our loan originations and profitability for the first quarter of 2023 to improve from levels achieved in the fourth quarter of 2022. In addition, we expect to continue double-digit growth in both our loan originations and net profit for the year 2023. Let me now hand over the call to our CFO for the financial update. Thank you.

Okay. I will now provide more details on our financial results. Please note that all numbers are in RMB terms unless otherwise stated. In the fourth quarter, we continued our third consecutive quarter of recovery, both in our overall business and in our financial numbers. This was in spite of the impact of COVID and the weaker economic conditions. Our continued recovery was the result of the management's continuous efforts in overhauling our risk management, focusing on better quality user segments, upgrading our technology and operational capabilities, as well as our new cost restructuring initiatives. First, please let me explain at a high level what happened in the quarter as compared to the same quarter of 2021. Total loan originations for the quarter reached $56.1 billion, an increase of 29% year-over-year, in spite of the COVID outbreak and meeting the high end of our guidance. Revenue grew by 38.7% year-over-year to reach $3.1 billion for the quarter, which was mainly driven by the GMB growth. The weighted average APR stood at approximately 24% for the fourth quarter, close to 2% points lower than a year ago. Loans with APR under 34% now make up more than 83% of all loans. Partially offsetting the negative impact from the lowered APRs on our loans was a decrease in our cost of funding from 7.7% a year ago to 6.8% in the fourth quarter. Loan tenors increased to 13.9 months versus 10.3 months a year ago. Importantly, we have been relentless in our focus on overhauling our risk management. This includes a focus on better credit user segments and rebuilding the team, the systems, and the infrastructure. Jared will elaborate more on this shortly. The improved results from our efforts can be partially seen in our 90-day-plus delinquency rate, which was at 2.53% in the fourth quarter as compared to 2.66% in the third quarter. The 30-day plus delinquency rate was at 4.62%, basically remaining stable as compared to third quarter, in spite of the rapidly deteriorating COVID situations in December. At the same time, we have launched a new initiative to restructure our cost by benchmarking against the industry. we have seen some early improvements to operating expenses. Specifically, processing and servicing costs, sales and marketing, research and development, and the G&A expense combined as a percentage of average loan balance are at about 1.2% as compared to 1.3% in the third quarter. G&A expense as a percentage of average loan balance stood at 0.1% versus 0.12% in Q3. Of course, we realize this is only a very small start, but we will be sure to fully explore all the opportunities to improve our operational efficiency in the future. As a result of the aforementioned, we are able to report net income of $301 million, an increase of 18% year-over-year. This is not an easy achievement in light of the severe impact of the COVID outbreak and the weak macroeconomic conditions. Apart from the above year-over-year analysis, I would also like to elaborate a little bit more on the progress achieved through some quarterly comparisons. Total GMV was 56.1 billion, almost flat from Q3, as we have generally taken a more prudent approach towards scale in terms of the uncertainty around COVID for all of 2022. However, Total Q4 revenue grew 13.4% quarter over quarter due to an improved take rate of 2.59% versus 2.55% in Q3. The uptake rate is a result of an overall improvement in asset quality and lowered funding cost, which has continued to improve since the beginning of the year. operating expenses declined by 2.1% quarter over quarter as a result of our cost restructuring initiatives, and this in turn led to a sequential growth in net income of 9.3%. In summary, we have made great progress during the fourth quarter of past year from both a year-over-year and a quarter-over-quarter perspective. If you take a look at the four-year 2022 numbers, Total GMB was $204.6 billion, a decrease of only 4.3% year-over-year, with the total loan balance reaching $99.6 billion, an increase of 15.9% year-over-year. Total revenue was $9.9 billion, a decline of 13.3% year-over-year. Obviously, like most other companies, we have been negatively impacted by the weak macro environment. Since hitting the lowest point in earning in first quarter of 2022, we have since seen a continuous recovery in profitability, and the fourth quarter represents the third consecutive quarter of this recovery. This demonstrates the resilience and the sustainability of our business. We've already realized that it will turn around. We still have a long way to go. But the fourth quarter of 2022 should mark the end of three years of macro-related uncertainty, with the ending sounding on a bit of positive note. Next, let's take a detailed look at the financials. As mentioned, our total operating revenue for the fourth quarter was $3.1 billion, representing an increase of 13.4% quarter-over-quarter and 38.7% year-over-year. Revenue from credit facilitation service was approximately 2.0 billion, representing a 17.9% increase quarter over quarter and an over 71.4% increase year over year. Revenue from tech empowerment service was 413 million, representing a 17.4% decrease quarter over quarter and 34.6% year over year, which was mainly due to the COVID impact where both the volume and the rev share percentage were lowered. Revenue from installment e-commerce platform service was 674 million, representing an increase of 28.4% from the last quarter and an increase of 59.3% year-over-year, which can be attributed to a strong single-day shopping festival. Moving on to the expense side of this quarter. Sales marketing expense decreased by 0.4% quarter over quarter, which was mainly due to our scaled-down approach to new user acquisition in a time of macro uncertainty. Recently, however, we have noticed an improvement in user credit quality as well as improved economic activity. We will continue to closely monitor this and other macro indicators, and we'll be sure to seize on the right opportunities to invest in new user acquisitions when conditions are favorable. Research and development expenses decreased by 3.5% quarter over quarter, and it decreased 17.1% year over year to $136 million. General administrative expenses decreased by 7% quarter-over-quarter and 17.9% year-over-year to $97 million. While our top-line revenue continued a promising upward trajectory this year, G&A expenses remained very stable and decreased on a quarter-over-quarter basis for three consecutive quarters, demonstrating the continuous improvements to our operating efficiency, which we expect to continue in the future. Net profit was approximately $301 million in the fourth quarter, a 9.3% increase quarter-over-quarter, and a 17.9% year-over-year, in line with our expectation. Next, some updates on our Shared Repurchase Program and our convertible notes. First, on our Shared Repurchase Program. In March 2022, the company's board authorized a 50 million US dollars share slash ADS repurchase program. And in addition, in November 2022, the company's board authorized a second share repurchase program under which the company could purchase up to an aggregate of 20 million US dollars of its shares slash ADS over the next 12 months. As of December 31st, 2022, the company had repurchased a total of approximately 22 million ADS for about 48 million US dollars. Legends Management remains open to making further repurchases in the future. Separately, on our convertible notes, we have entered into an amendment agreement with PAG regarding our existing convertible notes in the amount of 300 million US dollars. According to the original payment schedule, the company was potentially expected to pay the principal plus interest in one lump sum in September 2023. With the amendment, we're able to begin the repayment ahead of the original schedule and complete the installment payment plan over a 14-month period ending in April 2024. The notes remain convertible into fully paid Class A ordinary shares of the company or ADS at the original conversion price of 14 US dollars per ADS at the holders option. At the end of 2022, the company had a cash position of $4.1 billion on hand and a net equity position of $8.6 billion. Although Le Xin has a strong balance sheet and sufficient cash reserves to meet the original terms of the convertible notes agreement, we see the new arrangement as more beneficial for the company as it will allow us to smooth out the cash flow impact from the repayment as opposed to a single lump sum payment. This will give us more time and flexibility to efficiently plan and utilize capital in pursuing business growth opportunities. Finally, I would like to discuss our outlook for the first quarter of 2023. Based on the company's preliminary assessment of current market conditions, total loan originations for the first quarter of 2023 are expected to be around 60 billion RMB, representing an increase of 39% on a year-over-year basis. These estimates reflect the company's current expectation, which is subject to change. For 2023, as Jay mentioned earlier, we remain cautiously optimistic about China's macroeconomic recovery, consumption outlook, and a stabilized regulatory environment. Currently, we can see that our turnaround is well underway. As we continuously improve and revamp ourselves to be able to better meet the new challenges and address new opportunities ahead, We are looking forward to establishing a more solid and sustainable foundation for our future growth and profitability. With that, I would like to turn the call over to our president, Jared Wu, who will discuss our risk management. Jared, please go ahead.

Thank you, James. Good morning, everyone. I am very happy to chat with you again. Next, I will introduce the company's performance. The surge of the epidemic in December has brought some challenges to our risk management, which has a certain degree of impact on some early risk indicators. But because we are still continuing to adopt relatively stable public strategy and cautious customer strategy throughout the fourth quarter, and rely on the epidemic control system and regularization management system we established before, we have effectively eased this short-term impact. Thank you, James. Good morning and good evening, everyone. It's my great pleasure to be with all of you.

I'll elaborate more on our risk management measures and related progress. The impact of the COVID outbreak in December brought some pressure on our risk management, which in turn led to some short-term deterioration in our early risk metrics. But thanks to our continuous focus on stable risk policies and prudent customer acquisition, as well as the use of our previously built COVID risk monitoring system and refined management mechanisms, we were able to mitigate the short-term impact. At the end of the fourth quarter, we were able to hold our 30-plus-day delinquency rate flat. Compared to the third quarter at 4.62%, with our 90-plus-day delinquency rate continuing a steady decrease to 2.53%, down 13 basis points quarter over quarter. As a result of the trend that we're observing right now, with the recovery in China's social and economic activities after the Chinese New Year, We are seeing all our credit metrics recurring to normal levels and continue on a positive trajectory.

and improve the ability to dig up various kinds of data to ensure that we can further divide the customer group to carefully identify customer risks. Among them, we pay special attention to the real-time data of the people's bank. Digging up and using the real-time data of the people's bank is in rapid progress. Third, thanks to the improvement of data capability, we can quickly replace and upgrade the model of user division model of different customer groups. There is a positive improvement in the ability to identify users. In the past quarter, increasing the overall percentage of our prime customers was our top priority.

With our focus on this goal throughout the past year, we have worked on continually improving our overall risk management in the following areas. First, we focused on our prime customers by restructuring our user tiering system. This new system enables us to target the prime customer group in a more focused manner. Second, to further improve our core risk management capability, we invested heavily in the acquisition and utilization of complaint external compliant external data sources, and have substantially improved our ability to data mine such data to further segment users with different risk profiles. In particular, we put heavy emphasis on the credit data from POC, with our mining and usage of this data increasing dramatically. Third, due to the improvement on our capacity to handle data, We are able to more quickly perform higher iterations of our user identification models to target different customer segments, and we have made significant strides in user risk recognition. As a result of the above improvements, we are seeing notable increases in the rate of improvement in our asset quality, which is being demonstrated in our fourth quarter and in our first quarter risk performance metrics of the 2023. Since the beginning of the year, we have noticed that our day one delinquency rate has followed a downward trend. On the basis of our continuous investment and the current trend, we are confident that in 2023, our risk management capabilities will make additional improvements and breakthroughs.

2022 is a year full of challenges. It is also a year of the company's active construction risk management professional talent team's effort to upgrade risk management's underlying core capabilities and accelerate and refine risk management mechanisms. 2022 was a challenging year, but was also a year where we actively raised our risk management capability to another level and rapidly implemented a more refined risk management system.

Going forward, as mentioned both by Jay and James, while we're encouraged by the improving macroeconomic conditions and trends, we will remain cautiously optimistic, adhering to the policy of putting risk management first, and focusing on laying a solid ground for the healthy, sustainable, long-term, and balanced growth of the company. Thank you. This concludes our prepared remarks. Operator, we're now ready to take questions.

thank you as a reminder to ask question please press star 1 1 on your telephone to cancel request please press star 1 1 again one moment for the first question first question comes from yada lee from cicc please go ahead uh

Then I'll do the translation. Hello, management. This is Yadel from CICC, and thanks for taking my question. My question is from the user demand side after the COVID. Currently, are we experiencing a notable recovery? And I was wondering what's the guidance on loan growth in the coming quarters and the full year 2023 and 2024? That's all. Thank you.

Okay, let me answer these two questions. First of all, we see that domestic consumption is recovering relatively quickly, especially in terms of daily consumption. We see our own feelings. The restaurants and scenic spots are now full of people. Many places have to line up. In the past three years, I drove in Shenzhen myself. I didn't feel too many traffic jams. Now it's starting to be crowded. I think the country's recovery is still fast. From the heart itself, we have always been in this... OK.

We can feel for ourselves the fast recovery of the consumption of the entire nation, actually, especially on individual consumption. Say, for example, offline restaurants, touring spots. You can see people lining up for restaurants, waiting. And me, myself, for the past three years during the COVID time, while I myself was driving, there never was much of the traffic, even in Shenzhen. But right now, we're seeing traffic jams literally everywhere. As for our company leasing itself, for the ticket side of our scale, we were not terribly affected by the overall consumption scenario. Our risk alone was actually better, alongside with the recovery of the consumption, especially after Chinese New Year, we're seeing better risk indicators with the macroeconomic revival and recovery of the entire nation.

On the other hand, our e-commerce As mentioned before, it is still growing in a negative way. Due to the economic situation in China last year, the demand for credit consumption is actually rising. Our e-commerce and other e-commerce platforms are clearly differentiated. Because our e-commerce platform is actually a shopping platform driven by credit. When the epidemic and economy are bad, we don't have too much money to spend. On the contrary, the demand for credit consumption will become better.

So as far as e-commerce platform, as we mentioned earlier, it actually saw a growth a little bit against the overall e-commerce trend as our nation's economy not being a little bit hit by the overall COVID restrictions and all the policies, all that for the past several years, especially past year. The credit needs actually grew. And for us, we are a little bit different from other e-commerce platforms. We are still mostly mainly credit-driven. So in a way, when the macro economy is not as good as before, our credit need actually went higher.

Regarding the entire budget for this year and 2023, I think we first of all have good confidence in the recovery of consumption and domestic economy. But at the same time, I think we still need to run carefully. We have to insist on sustainable profit growth as a priority. This year, we will also appropriately increase our customer investment. I think this year is actually a good year for Lexin. Especially last year, we were doing a strategic transformation of the entire company. We are working on a lot of underlying and basic standards. So for the full year guidance for 2023, well, overall, we are confident on the recovery of the overall consumption of the country. But we, like we said before, we are

continuously to remain prudently optimistic. We still put sustainable development, especially on the profitability first. And we are, we will take actions when the time is right to invest in S&M. And we actually do believe it will be a good year for Lushin to develop, especially after the last year, which was 2022. We had a turnaround. We had a strategic adjustment of the company. In terms of the four-year loan guidance, we expected, as of right now, Under current situation on our speculation, it should be around $245 billion to the top line of $255 billion.

And also this year, our installment e-commerce platform services as well as tech empowerment service business will be both of our other two growth drivers as well.

Thank you for the questions. One moment for the next questions. Next question is from Alex Yeh of UBS. Please go ahead.

From the perspective of asset quality, there is an improvement in all aspects. Can you give us an overview of the expectations for 2023? How much improvement can be made from some quantitative indicators? For example, from the perspective of the target of vintage charge of rate and the perspective of the annual credit cost, can you share with us? I have two questions. First one is on asset quality. Management has mentioned that various indicators have shown that a notable improvement at the beginning of the year. I'm wondering if you can share any color on was the expectation in 2023 in terms of the magnitude of improvement versus last year, for example, in terms of the vintage charge of rate and the annualized credit cost perspective. Second question is on the loan pricing and funding cost. I'm wondering to what extent do we expect them to decline in this year and their implication for our tech rate outlook? Thank you.

In terms of this year's risk, I think China's economic development has provided a relatively good environment. So we think, as mentioned earlier, in terms of the management of the risk this year, we are relatively confident. As we talked about earlier, some of the results we have seen in terms of user division and data integration model are still relatively good. So we expect that the entire risk of this year will continue to decline. Because from the point of view of the new asset we have now, the overall ratio of our high-quality users, our RR1 to RR3 customers, is constantly growing. And in the future, we also have a plan and a goal to continue to reduce the entire high-risk users range of 6 to 8 users. As we now change the structure of the new asset every month, the structure of the new asset is even better. This kind of new asset goes into the entire balance sheet. We believe that the entire risk will go into a continuous downward channel. So I think the other question is about our whole pricing. I think our pricing is over 80% of the year. It's already in the 20s. So we're in this quarter. It's already 24, 24, a little bit. So I think we're in this year's whole year. The whole price target is still, I guess, around 24, 24. I think there is a space like this. In terms of PR, with the improvement of the entire indicator of the entire risk, and then the decline in capital costs, in fact, in this quarter, the capital costs will also drop a certain extent, including that we can see that the capital costs will continue to decline in Q1, because the entire financial environment of China this year is also better. Therefore, we expect that this year the entire tech rate will continue to grow. We even saw that the tech rate in recent months has been above 3,

Okay, in terms of the asset quality, for the year 2023, as I mentioned earlier, we're still confident in the macro environment. We are still confident in putting our risk management as one of our priority and also the optimization of our customer segmentation as well as the mixing of the matrix and modeling. We expect to continue our risk indicator to continue to decrease in risk level. especially with the percentage of our RR123 prime customers in our new loans continue to increase, and we target to expedite to shrink down the size of the RR628, which are less high-risk customers on the new loan. As the new loan structure gets better, the overall structure gets utilized and optimized the overall structure of the outstanding loan gets better, our risk management can show a very prominent sign of decrease. In terms of APR, for this quarter, we already have over 80% mixed within 24. And for this quarter, our pricing is actually indefinitely close to 24%. And in the near future, we expect the pricing level to be around this range. In terms of take rate, as our risk level gets better, like I mentioned earlier, the funding costs continue to decrease. As you might have heard earlier in my script, we mentioned that this quarter, for the fourth quarter of 2022, our funding costs actually lowered comparatively, sequentially, even quarter over quarter. And we are, for this quarter, first quarter of 2023, seeing also lowered funding costs. Of these two factors together, we actually expect our tick rate to continue to increase. And we are seeing, for the past couple of months, tick rates for over 3%. Thank you. Hope that answers your question, Alex.

Thank you for the questions. One moment for the next questions. Next, we have Zoe Zhou from CLFA. Please ask your question.

And I will do the translation. Thank you for taking my question.

This is Zoe from CISA. So the first question regarding the decoupling of direct link, and we are wondering when we can target to achieve the full compliance in terms of all the existing loans, price below 24%, and second, with our business strategy between capital life and capital heavy model going forward. Thank you.

Talking about the monitoring, the first point is that we have not received any monitoring We are not a 13 plus 1 platform. According to our understanding, 13 plus 1 platform's main monitoring and improvement is in terms of cross-border chain. In terms of cross-border chain, Baihang and Pudao and Zengxin are cooperating with each other. Among them, Pudao and Zengxin, our internal plan is to complete the entire cross-border chain This is a full-chain transformation of the transaction. It is expected to be completed before June 30. According to our understanding of the industry, some of the original plans of the 13 plus 1 platform have also been postponed. As the organization structure of the whole institution of the new country is adjusted, Right now, we have not yet received further clear instructions.

It's worth mentioning that we are not one of the 14 platforms and the for the 14 platforms are more on the decoupling, disconnecting from the banks. And also it's worth noting that we are both simultaneously in discussion with BaiHang as well as Pudao. Especially with Pudao, we are expect as of right now, based on the progress, to have the trial run by or before June 30th. But right now, as far as we know, with all the adjustment as well as all the changes with the regulators, the ratification and the actual deadline is possible to be delayed. And also with the new structure, the regulator structure being adjusted, the date there is the possibility of a postponement of a date, and the regulated search foundations might need time to cohort themselves, put themselves together in a more formal and regulated way to actually proceed.

Okay, regarding your second question, I will take a shot at it. Basically, you're asking about the capital line model. Right now, the revenue share model with the financial partners, basically, In terms of revenue, it accounts roughly about 20% to 30%. I think this will continue to be our target for the remaining of the year. Obviously, this is a balance between the risk you are taking versus the profitability. If we increase the risk taking on the business side, obviously, this will increase the profitability. But if you want to be kind of more capitalized, obviously you're taking less risks than this is the balance we have to take. So I think directionally from the company perspective, we do want to gradually increase the capitalized model. And what will help us in this regard is that we have the tech empowerment business that we have with the medium to smaller-sized banks. And with the increase of that business, obviously, we will increase the rev share with the financial partners. Eventually, this will lead to a gradual increase of the capitalized model. Hope this answers your question.

Thank you very much. With that, I'd like to hand the call back to the management for closing remarks. Thank you.

Thank you again, everyone, for joining us today. If you have further questions, please contact us via our contact information available on our IR website. Thank you.

Thanks. Bye-bye. Let's conclude today's conference call. Thank you for your participation. You may now disconnect.

The conference will begin shortly. To raise and lower your hand. you you Thank you.

Thank you.

Thank you for standing by. Welcome to Le Sing Fintech 4th Quarter and 4th Year 2022 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Mr. Jamie Wang, IR Manager. Thank you. Please go ahead.

Thank you, Desmond. Hello, everyone. Welcome to Lilxing's fourth quarter and full year 2022 earnings conference call. With us on the line today are our CEO, Jay Hsiao, President Jared Wu, and CFO James Chung. Before we get started, I'd like to remind you that the call and presentation contain business outlook and forward-looking statements, which are based on the assumptions as of today. The actual results might differ materially, and we undertake no obligation to update any forward-looking statements. Jay will first provide an update on our overall performance. James will cover the financial results in more detail. And lastly, Jared will then discuss risk management. I'll now turn the call over to our CEO, Jay. His remarks will be in English. Sorry, his remarks will be in Chinese, and the English translation will follow. Jay.

Hello, everyone. I am very happy to share with you the performance of the fourth quarter of 2022. In the fourth quarter of 2022, the national epidemic experienced a turning point, which brought a lot of pressure to the macroeconomic economy. Although so, we insist on taking risks as the center, drive decision-making with data, and continue to advance detailed operation. This has helped us successfully overcome the difficulties and achieved good results. In the fourth quarter, the transaction amount reached 5.61 billion yuan, and the share price growth was 29. The management balance amounted to 99.6 billion yuan, The same growth of 16% revenue 3.1 billion the same growth of 38.7% net profit 300 million the same growth of 17.9% asset quality steady down capital costs from the third quarter of the 7th down to 6.8% profit and loss continue to increase net profit from the first quarter of 4.8% steady rise to the fourth quarter of 9.9% from the fourth quarter of According to the data, Lexin has grown steadily for three consecutive seasons and has realized a slight reversal.

Good morning and good evening, everyone. It's my pleasure to see you again. In the fourth quarter of 2022, the COVID situation in China underwent a major turning point, bringing considerable pressure to the Chinese economy. But despite the such pressure, we were able to achieve satisfactory results by rigorously adhering to a strategy of prioritizing risk management. making data-driven decisions, and continuously focusing on improving and refining our operations. Our loan originations for the past quarter reached $56.1 billion, representing an increase of 29% year-over-year, with total outstanding loan balance reaching $99.6 billion as of December 31, 2022, representing an increase of 1616% year-over-year. Total revenue reached 3.1 billion, representing an increase of 38.7% year over year, with net income reaching 301 million, representing an increase of 17.9% year over year. Our asset quality continues to steadily improve. In addition, funding costs decreased to 6.8% from 7.0 in the third quarter, Our net profit margin increased substantially from 4.8% in the first quarter of 2022 to 9.9% this past quarter. From our fourth quarter numbers, we can see that Lexin has clearly produced three consecutive quarters of steadily improving profitability, realizing a V-shaped recovery. To be more specific, there were three main highlights for the past quarter. First, the continued improvement in asset quality. Second, the ability of our installment e-commerce platform service business to deliver growth against a weak backdrop. And breakthroughs in our tech empowerment service sector, which achieved its first quarterly profit And third, notable results in reducing operating costs and increasing efficiency.

On asset quality, although we were affected by the COVID outbreak,

LeShing was able to continue our stable and upward trajectory in asset quality, which was accomplished through our focus on continuous improvements to our risk management capabilities and our progress in refining our operations. And this can be seen from our existing and our new customers.

For Laoke, we mainly took two-way measures. First, to increase the ability of high-quality users to identify users. In terms of data, deep-dive data on storage user information and LeShing ecosystem data to improve the recognition capability of different customer groups, especially to continue to explore the value of real data in the central bank. In-depth construction includes user risk, income, assets, debt, and other multi-dimensional features to fully enhance user image clarity. On the model application, more than 10 data ecological joint modeling is completed to establish a value evaluation framework. The improvement of the recognition capability of high-quality users allows us to further increase the investment in this part of the customer group, and at the same time accelerate the

For existing customers, we took the following two steps. First, we improved our ability to identify prime customers. From our data and through deeper data mining of the information available with Lushin's ecosystem, we refined our ability to identify different customer segments. In particular, we continue to data mine and obtain valuable information from the PBOC's credit data. This allowed us to more deeply and comprehensively to improve our customer risk assessment related profiles in multiple dimensions, including customer risk profile, income level information, asset information, and existing customer liability. In the application of our models, we were able to finalize the joint modeling of over 10 data loops building an accurate ROI evaluation framework in the progress. Improvements in our ability to identify prime customers allowed us to dedicate greater resources towards serving this customer segment, while also expediting the reduction of high-risk segments.

We adopted a multi-faceted, sophisticated operation strategy. Based on user insight, continuous improvement of data and model capabilities, Second, we applied our Tian Ren Tian Mian policy, which refines our operating strategy by improving our ability to identify different customer groups and segments via more accurate segmentation capabilities.

enabling us to dig deeper to meet and satisfy the needs of different customer cohorts and improve our customer satisfaction rates and customer retention.

In the fourth quarter,

loan contributions from our prime customers increased by 60% year over year, while loan contributions from our high-risk customers decreased by 13%. So, prime customers as a percentage of loan increased from 72% in the fourth quarter of 2021 to 82% in the fourth quarter of 2022. For new customers, we continue to improve data and model applications.

For our new customers, we continue to expand our dataset and the use of our models. We have built a complete end-to-end RTA processing model

which has significantly improved our post-customer acquisition conversion rate by over 50%. We have improved the efficiency and accuracy of our customer identification capabilities by 20% through pre-landing and in-landing channel model iterations. We have also constructed a new operational matrix to continuously increase and improve the retention rate and the activity rate for both new and existing customers.

In the fourth quarter, the percentage of new Prime customers with approved credit lines increased by 18.2%, with average ticket sizes for new customers increasing by 16.7 quarter over quarter.

Online advertising costs to convert credit lines into active borrowers from the time of granting of the credit line to the time of the use of credit decreased by 25.9% over quarter over quarter for prime customers.

The market share of Venkatesh has reached 1.4 billion in the fourth quarter, which is 40.2% higher than before. The new trend of young people has become a source of growth. In addition to 3C, the growth of young people's favorite products, such as makeup, shoes, and sportswear, has significantly strengthened our scene and customer base. In 2022, the number of Venkatesh's annual product brands will increase by 103%, and the price of products will increase by 39%.

The second highlight was the ability of our installment e-commerce platform service business to deliver growth against a weak backdrop and outbreak in our tech empowerment service sector, which achieved its first quarterly profit. Our installment e-commerce platform service business, under a weak backdrop of poor overall consumption throughout the year last year, was able to achieve $1.4 billion in GMV for the fourth quarter, an increase of 40.2% year-over-year. Younger, more fashion-focused, non-electronic devices consumption scenarios such as cosmetics, apparel, and footwear favored by younger demographics became our main driver, demonstrating notable increases in growth and further enhancing our competitive advantages in consumption scenarios and consumer demographics in the process. For the year 2022, our e-commerce platform FenQiLe's total number of merchants grew by 103% year-over-year, with average ticket prices increasing by 39% year-over-year.

In addition, the financial literacy business of small and medium-sized banks has also made obvious progress. Financial literacy has implemented digital transformation for financial institutions to provide product construction, In addition, our tech empowerment service business

designed for small and medium-sized banks, has also made significant progress. Our service enables the digital transformation of our financial institutional partners by providing five core services. Product development, customer acquisition channel co-building, joint risk management, customer lifecycle management, and intelligent customer services. Enabling our partners to achieve breakthroughs in their businesses. Our partners have been steadily growing wherever the cooperation has come online. And all new launches in the fourth quarter have progressed to scale. Enabling our tech empowerment service business to achieve profitability for the quarter.

These two businesses are an important part of Lexin's business ecosystem. They work together with the consumer finance industry. These two businesses are both critical components of our ecosystem, forming a mutually reinforcing cycle and linking with our main credit facilitation business.

Each business has also achieved its own respective breakthroughs in the fourth quarter and can be expected to become Lushin's new growth driver in the future. Lushin's ecosystem, which is integrated with different businesses in various consumption scenarios, as well as technological capabilities, will in time become our core competitive advantage, differentiating ourselves from our competition and establishing our sustainable long-term core competitive advantages.

The three highlights are that the work of reducing cost-effectiveness has achieved obvious results. In the fourth quarter, the operating cost was 6.6 billion yuan, which fell by 2.1 percent. In particular, the management cost dropped to 9,706 million yuan, which fell by 7 percent. The total cost accounted for an average management balance ratio that has continued to decline since Q2 2022. In addition, we are promoting the rapid organization construction in the fourth quarter. Part of the organizational structure is reorganized, and part of the energy is generated. The activation of organizational activity has further improved organizational efficiency.

The third highlight is related to the notable results in reducing operating costs and increasing efficiency. Operational expenses for the fourth quarter were RMB $660 million, down 2.1% sequentially. In particular, G&A expenses decreased by 7% quarter over quarter to about RMB $97 million. Total expenses as a percentage of the outstanding loan balance have continued to decline. second quarter of 2022. In addition, in the fourth quarter, we restructured some functions and downsized the headcount to further stimulate the overall vitality of the company and to improve organizational efficiency.

In addition, in the fourth quarter, we restructured some functions and downsized the headcount to further stimulate the overall vitality of the company and to improve organizational efficiency. smart business, engine digitalization, and naturalization capabilities, as well as the key parts of business, management, and enterprise operation. In terms of system capabilities, we recommend that the indicator movement and the natural sound system be applied to the core nodes of trading and wind control, build a unified event management platform, and cover all internal and external products and technical events, and greatly enhance the data perception capabilities. In terms of model applications, we continue to improve the model system of the user's lifetime cycle, Behind the aforementioned operational achievement is the continued enhancement of our data and technological capabilities.

RMB expenses for the whole quarter was approximately RMB 136 million, which represents a leading position in the industry. Cixin's unique smart business engine has integrated digital and intelligent capabilities into every key aspect of our daily operation and enterprise. Specifically, in terms of system capabilities, we further applied the indicator variation and intelligent attribution system to the core nodes of our transaction and risk management systems. We built a unified event management platform covering all internal and external events related to products and technology, greatly improving our data efficiency and accuracy. In terms of model applications, we continue to improve our lifecycle model and has developed and iterated more than 30 targeted marketing models, among which our model matrix of customer intent and customer reaction is able to cover scales of 10 million users per month and has achieved meaningful results. For specific customer groups, after using our models, order rates have increased by 30%, with our pool and profits increasing by over 50%.

Finally, I would like to talk about my enthusiasm in the field of corporate social responsibility. In the first half of 2022, we launched the small shop fire plan. Through a series of measures to alleviate the financial difficulties of small and medium-sized enterprises, we continued to assist the fourth quarter to generate a loan of 5 billion yuan for small and medium-sized enterprises. In February this year, we further launched the village and consumer recovery action. Through promoting consumer consumption, promoting business growth, promoting small and medium-sized enterprises recovery in three aspects, nine measures to promote consumer recovery, In addition, in terms of consumer protection, we have recently set up a 24-hour customer service specialization line to continuously increase consumer satisfaction.

Finally, I would like to update you on Lexin's corporate social responsibility initiative. In the first half of 2022, we launched a specific program called Xiao Dian Yan Huo to help relieve small and micro enterprises with their cash liquidity problems. In the fourth quarter, to continue to provide assistance, enabling the total amount of small and micro loans to reach $5 billion for the quarter. In February of this year, a follow-up program called was launched, which aims to promote a recovery in consumption through our nine initiatives and three directives, promoting individual consumption facilitating merchant growth, and enabling the recovery of small and micro-sized businesses. In addition, to better protect customers, we are currently instituting a 24-7 customer protection hotline, which will also further enhance our customer satisfaction rate.

In the future, domestic consumption will gradually accelerate, and the economic environment will improve. We are optimistic about the growth of our business this year. In 2023, we will focus on the key goals of sustainable profit and growth as a company. Specifically, it includes the following four aspects of work. First, to continue to strengthen the supply and supply system and to build human resources to further improve asset quality. Second, consumer finance main business focus on detailed operation. Old customers strengthen the recognition and operation of high-quality users. New customers adjust the strategy according to the economic situation. Catch up on consumption recovery. Going forward, we see an accelerated pace

of recovery for domestic consumption and improve macroeconomic environment. So, we remain cautiously optimistic about the prospects for business growth this year. In 2023, we will make sustainable profitability, which is Le Chien's main objective. Four concrete steps which we'll take towards this goal are, first, is to continue to strengthen our risk management systems and build our core capabilities. further improving our asset quality in the process. Second, is to focus on refining our customer operations by improving our ability to identify and manage our prime customers from our existing ones. Adjusting policies for our new customers based on the economic conditions, capturing the opportunities presented by the consumption recovery through investing in customer acquisition at the opportune time, continuing to both improve our customer quality and quantity, and improving asset quality in the process. Third, is to strengthen Leqing's unique business ecosystem, including online consumer finance, offline , installment e-commerce platform service, tech empowerment service, and more, allowing our multiple and diverse businesses to become mutually supportive and mutually reinforcing. generating a virtuous cycle. Fourth is to continue to reduce costs and improve efficiency, increasing our ability to generate sustainable profits in the process.

In the first quarter,

In the first quarter of 2023, our total loan balance exceeded RMB 100 billion, marking another milestone in the company's growth and development. With the exception of the beginning of the first quarter, which was negatively impacted by the tail end of the COVID outbreak, All risk management-related metrics have started to recover since February, and we expect both our loan originations and profitability for the first quarter of 2023 to improve from levels achieved in the fourth quarter of 2022. In addition, we expect to continue double-digit growth in both our loan originations and net profit for the year 2023. 接下来,我把发言的机会交给我们的学童,谢谢。 Let me now hand over the call to our CFO for the financial update. Thank you.

Okay. I will now provide more details on our financial results. Please note that all numbers are in RMB terms unless otherwise stated. In the fourth quarter, we continued our third consecutive quarter of recovery, both in our overall business and in our financial numbers. This was in spite of the impact of COVID and the weaker economic conditions. Our continued recovery was the result of the management's continuous efforts in overhauling our risk management, focusing on better quality user segments, upgrading our technology and operational capabilities, as well as our new cost restructuring initiatives. First, please let me explain at a high level what happened in the quarter as compared to the same quarter of 2021. Total loan originations for the quarter reached $56.1 billion, an increase of 29% year-over-year, in spite of the COVID outbreak and meeting the high end of our guidance. Revenue grew by 38.7% year-over-year to reach $3.1 billion for the quarter, which was mainly driven by the GMB growth. The weighted average APR stood at approximately 24% for the fourth quarter, close to 2% points lower than a year ago. Loans with APR under 34% now make up more than 83% of all loans. Partially offsetting the negative impact from the lowered APRs on our loans was a decrease in our cost of funding from 7.7% a year ago to 6.8% in the fourth quarter. Loan tenors increased to 13.9 months versus 10.3 months a year ago. Importantly, we have been relentless in our focus on overhauling our risk management. This includes a focus on better credit user segments and rebuilding the team, the systems, and the infrastructure. Jared will elaborate more on this shortly. The improved results from our efforts can be partially seen in our 90-day-plus delinquency rate, which was at 2.53% in the fourth quarter as compared to 2.66% in the third quarter. The 30-day plus delinquency rate was at 4.62%, basically remaining stable as compared to third quarter, in spite of the rapidly deteriorating COVID situations in December. At the same time, we have launched a new initiative to restructure our cost by benchmarking against the industry. We have seen some early improvements to operating expenses. Specifically, processing and servicing costs, sales and marketing, research and development, and a G&A expense combined as a percentage of average loan balance are at about 1.2% as compared to 1.3% in the third quarter. G&A expense as a percentage of average loan balance stood at 0.1% versus 0.12% in Q3. Of course, we realize this is only a very small start, but we will be sure to fully explore all the opportunities to improve our operational efficiency in the future. As a result of the aforementioned, we are able to report net income of $301 million, an increase of 18% year-over-year. This is not an easy achievement in light of the severe impact of the COVID outbreak and the weak macroeconomic conditions. Apart from the above year-over-year analysis, I would also like to elaborate a little bit more on the progress achieved through some quarterly comparisons. Total GMV was 56.1 billion, almost flat from Q3, as we have generally taken a more prudent approach towards scale in terms of the uncertainty around COVID for all of 2022. However, Total Q4 revenue grew 13.4% quarter over quarter due to an improved take rate of 2.59% versus 2.55% in Q3. The uptake rate is the result of an overall improvement in asset quality and lowered funding cost, which has continued to improve since the beginning of the year. operating expenses declined by 2.1% quarter-over-quarter as a result of our cost-restructuring initiatives, and this in turn led to a sequential growth in net income of 9.3%. In summary, we have made great progress during the fourth quarter of past year from both a year-over-year and a quarter-over-quarter perspective. If you take a look at the four-year 2022 numbers, Total GMB was $204.6 billion, a decrease of only 4.3% year-over-year, with the total loan balance reaching $99.6 billion, an increase of 15.9% year-over-year. Total revenue was $9.9 billion, a decline of 13.3% year-over-year. Obviously, like most other companies, we have been negatively impacted by the weak macro environment. Since hitting the lowest point in earning in first quarter of 2022, we have since seen a continuous recovery in profitability, and the fourth quarter represents the third consecutive quarter of this recovery. This demonstrates the resilience and the sustainability of our business. We've already realized that, you know, we're turned around. We still have a long way to go, but the fourth quarter of 2022 should mark the end of three years of macro-related uncertainty, with the ending sounding on a bit of positive note. Next, let's take a detailed look at the financials. As mentioned, our total operating revenue for the fourth quarter was $3.1 billion, representing an increase of 13.4% quarter-over-quarter and 38.7% year-over-year. Revenue from credit facilitation service was approximately 2.0 billion, representing a 17.9% increase quarter over quarter and an over 71.4% increase year over year. Revenue from tech empowerment service was 413 million, representing a 17.4% decrease quarter over quarter and 34.6% year over year, which was mainly due to the COVID impact where both the volume and the rev share percentage were lowered. Revenue from installment e-commerce platform service was 674 million, representing an increase of 28.4% from the last quarter and an increase of 59.3% year-over-year, which can be attributed to a strong single-day shopping festival. Moving on to the expense side of this quarter, Sales marketing expense decreased by 0.4% quarter over quarter, which was mainly due to our scaled-down approach to new user acquisition in a time of macro uncertainty. Recently, however, we have noticed an improvement in user credit quality as well as improved economic activity. We will continue to closely monitor this and other macro indicators, and we'll be sure to seize on the right opportunities to invest in new user acquisition when conditions are favorable. Research and development expenses decreased by 3.5% quarter over quarter, and it decreased 17.1% year over year to $136 million. General administrative expenses decreased by 7% quarter-over-quarter and 17.9% year-over-year to $97 million. While our top-line revenue continued a promising upward trajectory this year, G&A expenses remained very stable and decreased on a quarter-over-quarter basis for three consecutive quarters, demonstrating the continuous improvements to our operating efficiency, which we expect to continue in the future. Net profit was approximately $301 million in the fourth quarter, a 9.3% increase quarter-over-quarter, and a 17.9% year-over-year, in line with our expectation. Next, some updates on our Shared Repurchase Program and our convertible notes. First, on our Shared Repurchase Program. In March 2022, the company's board authorized a 50 million US dollars share slash ADS repurchase program. And in addition, in November 2022, the company's board authorized a second share repurchase program under which the company could purchase up to an aggregate of 20 million US dollars of its shares slash ADS over the next 12 months. As of December 31st, 2022, the company had repurchased a total of approximately 22 million ADS for about 48 million US dollars. Legends Management remains open to making further repurchases in the future. Separately, on our convertible notes, we have entered into an amendment agreement with PAG regarding our existing convertible notes in the amount of 300 million US dollars. According to the original payment schedule, the company was potentially expected to pay the principal plus interest in one lump sum in September 2023. With the amendment, we're able to begin the repayment ahead of the original schedule and complete the installment payment plan over a 14-month period ending in April 2024. The notes remain convertible into fully paid Class A ordinary shares of the company or ADS at the original conversion price of 14 US dollars per ADS at the holders option. At the end of 2022, the company had a cash position of $4.1 billion on hand and a net equity position of $8.6 billion. Although Le Xin has a strong balance sheet and sufficient cash reserves to meet the original terms of the convertible notes agreement, we see the new arrangement as more beneficial for the company as it will allow us to smooth out the cash flow impact from the repayment as opposed to a single lump sum payment. This will give us more time and flexibility to efficiently plan and utilize capital in pursuing business growth opportunities. Finally, I would like to discuss our outlook for the first quarter of 2023. Based on the company's preliminary assessment of current market conditions, Total loan originations for the first quarter of 2023 are expected to be around 60 billion RMB, representing an increase of 39% on a year-over-year basis. These estimates reflect the company's current expectation, which is subject to change. For 2023, as Jay mentioned earlier, we remain cautiously optimistic about China's macroeconomic recovery, consumption outlook, and a stabilized regulatory environment. Currently, we can see that our turnaround is well underway. As we continuously improve and revamp ourselves to be able to better meet the new challenges and address new opportunities ahead, We are looking forward to establishing a more solid and sustainable foundation for our future growth and profitability. With that, I would like to turn the call over to our president, Jared Wu, who will discuss our risk management. Jared, please go ahead.

Thank you, James. Good morning, everyone. I am very happy to chat with you again. Next, I will introduce the company's progress in risk performance. In December, the outbreak of the epidemic brought some countermeasures to our risk management, which had a certain degree of impact on some early risk indicators. But because we are still continuing to adopt a relatively stable public strategy and a cautious customer strategy throughout the quarter, and rely on the epidemic monitoring system and a standardized management system that we have established before, we have effectively eased this short-term impact. Thank you, James. Good morning and good evening, everyone. It's my great pleasure to be with all of you.

I'll elaborate more on our risk management measures and related progress. The impact of the COVID outbreak in December brought some pressure on our risk management, which in turn led to some short-term deterioration in our early risk metrics. But thanks to our continuous focus on stable risk policies and prudent customer acquisition, as well as the use of our previously built COVID risk monitoring system and refined management mechanisms, we were able to mitigate the short-term impact. At the end of the fourth quarter, we were able to hold our 30-plus day delinquency rate flat. Compared to the third quarter, at 4.62%, with our 90-plus day delinquency rate continuing a steady decrease to 2.53%, down 13 basis points quarter over quarter. As a result of the trend that we're observing right now, with the recovery in China's social and economic activities after the Chinese New Year, We are seeing all our credit metrics recurring to normal levels and continue on a positive trajectory.

and improve the ability to dig up various kinds of data to ensure that we can further divide the customer group to clarify the identification of customer risks. Among them, we are particularly aware of the real-time data of the bank. Digging up and using the real-time data of the bank is in rapid progress. Thirdly, thanks to the improvement in data capability, we have been able to quickly replace and upgrade the user division model of different customer groups. There has been a positive improvement in the ability to identify users. In the last quarter, increasing the overall percentage of our prime customers was our top priority.

With our focus on this goal throughout the past year, we have worked on continually improving our overall risk management in the following areas. First, we focused on our prime customers by restructuring our user tiering system. This new system enables us to target the prime customer group in a more focused manner. Second, to further improve our core risk management capability, we invested heavily in the acquisition and utilization of complaint external compliant external data sources and have substantially improved our ability to data mine such data to further segment users with different risk profiles. In particular, we put heavy emphasis on the credit data from POC, with our mining and usage of this data increasing dramatically. Third, due to the improvement on our capacity to handle data, We are able to more quickly perform higher iterations of our user identification models to target different customer segments, and we have made significant strides in user risk recognition. As a result of the above improvements, we are seeing notable increases in the rate of improvement in our asset quality, which is being demonstrated in our fourth quarter and in our first quarter risk performance metrics of the 2023. Since the beginning of the year, we have noticed that our day one delinquency rate has followed a downward trend. On the basis of our continuous investment and the current trend, we are confident that in 2023, our risk management capabilities will make additional improvements and breakthroughs.

2022 is a year full of challenges. It is also a year for the company to actively build risk management professional talent teams, to fully upgrade risk management's underlying core capabilities, and to accelerate and refine risk management mechanisms. As Jay and James mentioned earlier, we are optimistic about the overall environment of China's macroeconomic economy, stick to the risk-advantaged strategy, and focus on a healthy long-term balance development.

Thank you. 2022 was a challenging year, but it was also a year when we actively raised our risk management capability to another level and rapidly implemented a more refined risk management system. Going forward, as mentioned both by Jay and James, while we are encouraged by the improving macroeconomic conditions and trends, we will remain cautiously optimistic, adhering to the policy of putting risk management first, and focusing on laying a solid ground for the healthy, sustainable, long-term, and balanced growth of the company. Thank you. This concludes our prepared remarks. Operator, we're now ready to take questions.

Thank you. As a reminder, to ask questions, please press star 11 on your telephone. To cancel requests, please press star 11 again. One moment for the first question. First question comes from Yada Li from CICC. Please go ahead.

Hello, Mr. Director. Thank you for giving me this opportunity. I'm Li Yada from the central company. Today, I would like to ask Mr. Director a simple question. From the user's needs, Then I'll do the translation. Hello, management. This is Yada from CICC, and thanks for taking my question. My question is from the user demand side after the COVID. Currently, are we experiencing a notable recovery? And I was wondering what's the guidance on loan growth in the coming quarters and the full year 2023 and 2024. That's all. Thank you.

Many places have to queue up. In the past three years, when I drove in Shenzhen, I didn't feel that there were too many traffic jams. Now it's getting crowded. I think China's recovery is still quite fast. From the point of view of Lexin itself, we have been using less than 10,000 yuan per unit. To be honest, we didn't feel too much impact. OK.

We can feel for ourselves the fast recovery of the consumption of the entire nation, actually, especially on individual consumption. Say, for example, offline restaurants, touring spots. You can see people lining up for restaurants, waiting. And me, myself, for the past three years during the COVID time, while I, myself, was driving, there never was much of the traffic, even in Shenzhen. But right now, we are seeing traffic jams literally everywhere. As for our company leasing itself, for the ticket side of our scale, we were not terribly affected by the overall consumption scenario. Our risk alone was actually better, alongside with the recovery of the consumption, especially after Chinese New Year, we're seeing better risk indicators with the macroeconomic revival and recovery of the entire nation.

On the other hand, our e-commerce industry As I mentioned before, it is still growing in a negative way. Because last year, China's economic environment was not very good. In fact, the demand for credit consumption is rising. Our e-commerce and other e-commerce platforms are clearly differentiated. Because our e-commerce platform is actually a shopping platform driven by credit. So when everyone's When the epidemic and economy are bad, people don't spend too much money. On the contrary, the demand for credit consumption will become better.

So as far as e-commerce platform, as we mentioned earlier, it actually saw a growth a little bit against the overall e-commerce trend as our nation's economy not being a little bit hit by the overall COVID restrictions and all the policies, all that for the past several years, especially past year. The credit needs actually grew. And for us, we are a little bit different from other e-commerce platforms. We are still mostly mainly credit-driven. So in a way, when the macro economy is not as good as before, our credit need actually went higher.

Regarding the entire budget for this year and two or three years, I think we first of all have good confidence in the recovery of consumption and domestic economy. But at the same time, I think we still have to run carefully. We have to insist on sustainable profit growth as a priority. This year, we will also appropriately increase our revenue. I think this year is actually a good year for us. Especially last year, we carried out a strategic transformation of the entire company. We have a lot of bottom-up energy and foundation. So for the full year guidance for 2023, well, overall, we are confident on the recovery of the overall consumption of the country. But we, like we said before, we are

continuously to remain prudently optimistic. We still put sustainable development, especially on the profitability first. And we are, we will take actions when the time is right to invest in S&M. And we actually do believe it will be a good year for Lushin to develop, especially after the last year, which was 2022. We had a turnaround. We had a strategic adjustment of the company. In terms of the four-year loan guidance, we expected, as of right now, Under current situation on our speculation, it should be around $245 billion to the top line of $255 billion.

And also this year, our installment e-commerce platform services as well as tech empowerment service business will be both of our other two growth drivers as well.

Thank you for the questions. One moment for the next questions. Next question is from Alex Yeh of UBS. Please go ahead.

Thank you for your question, Mr. Guan. I have two questions. The first one is from the perspective of asset quality. Currently, there is an improvement in all aspects of the index. Can you give us an overview of the expectations for 2023? How much improvement can be made from some quantitative indexes compared to 2022? For example, from the perspective of the target of vintage charge of rate and the perspective of the annual credit cost, can you share with us? I have two questions. First one is on asset quality. Benjamin has mentioned that various indicators have shown that a notable improvement at the beginning of the year. I'm wondering if you can share any color on was the expectation in 2023 in terms of the magnitude of improvement versus last year, for example, in terms of the vintage charge of rate and the annualized credit cost perspective. Second question is on the loan pricing and funding cost. I'm wondering to what extent do we expect them to decline in this year and their implication for our tech rate outlook? Thank you.

In terms of this year's risks, I think China's economic development has provided a relatively good environment. So we think, as mentioned earlier, in terms of this year's company's risk management, we are relatively confident. As we talked about earlier, we have seen some good results in terms of user division and data integration model. So we expect that the entire risk of this year will continue to decline. Because from the point of view of our new asset, we are a good user. The overall ratio we said is our R1 to 3 customers. It is constantly growing. And in the future, we also have a plan. The goal is to reduce the entire high risk user range from 6 to 8 users continuously. As we now change the structure of the new asset every month, the structure of the new asset is even better. If this kind of new asset enters the entire fish market, we believe that the entire risk will enter a continuous downward channel. I think the other question is about our whole pricing. I think our pricing is also more than 80% within 20 years. So we are already in the early 20s in this quarter. So I think our goal for pricing this year and the whole year is still, I guess, around 24. I think there is a space like this. In terms of PR, with the improvement of the entire indicator of the entire risk, and then the decline in capital costs, in fact, in this quarter, the capital costs have also dropped a certain extent, including that we can see that the capital costs have also dropped further in Q1, because the entire financial environment of China this year is also better. Therefore, we expect that the entire tech rate this year will continue to grow. We even saw that the tech rate in recent months has been above 3,

Okay, in terms of the asset quality, for the year 2023, as I mentioned earlier, we're still confident in the macro environment. We are still confident in putting our risk management as one of our priorities and also the optimization of our customer segmentation as well as the mixing of the matrix and modeling. We expect to continue our risk indicators to continue to decrease in risk level. especially with the percentage of our RR123 prime customers in our new loans continue to increase, and we target to expedite to shrink down the size of the RR628, which are less high-risk customers on the new loan. As the new loan structure gets better, the overall structure gets utilized and optimized the overall structure of the outstanding loan gets better, our risk management can show a very prominent sign of decrease. In terms of APR, for this quarter, we already have over 80% mixed within 24. And for this quarter, our pricing is actually indefinitely close to 24%. And in the near future, we expect the pricing level to be around this range. In terms of take rate, as our risk level gets better, like I mentioned earlier, the funding costs continue to decrease. As you might have heard earlier in my script, we mentioned that this quarter, for the fourth quarter of 2022, our funding costs actually lowered comparatively, sequentially, even quarter over quarter. And we are, for this quarter, first quarter of 2023, seeing also lowered funding costs. Of these two factors together, we actually expect our tick rate to continue to increase, and we are seeing, for the past couple of months, tick rates for over 3%. Thank you. Hope that answers your question, Alex.

Thank you for the questions. One moment for the next questions. Next, we have Zoe Zhou from CLFA. Please ask your question.

And I will do the translation. Thank you for taking my question.

This is Zoe from CISA. So the first question regarding the decoupling of direct link, and we are wondering when we can target to achieve the full compliance in terms of all the existing loans priced below 24%, and second, what is our business strategy between capital life and capital heavy model going forward? Thank you.

Talking about the monitoring of the monitoring, the first point is that we have not received monitoring We are not a 13 plus 1 platform. As far as we know, 13 plus 1 platform's main monitoring and improvement is in terms of short-term chain. In terms of short-term chain, we and Baihang and Pudao and Zengxin, both companies are working together. In particular, Pudao and Zengxin, our internal plan is to complete the entire project before 2030. It's a full chain transformation. It's expected to be completed before June 30. According to our knowledge of the industry, some of the original plans of the 13 plus 1 platform have been delayed. With the adjustment of the organization structure of the whole government, So as of right now, we have not yet received further clear instructions

It's worth mentioning that we are not one of the 14 platforms and the for the 14 platforms are more on the decoupling, disconnecting from the banks. And also it's worth noting that we are both simultaneously in discussion with Baihang as well as Pudao. Especially with Pudao, we are expect as of right now based on the progress to have the trial run by or before June 30th. But right now, as far as we know, with all the adjustment as well as all the changes with the regulators, the ratification and the actual deadline is possible to be delayed. And also with the new structure, the regulator structure being adjusted, there is the possibility of a postponement of a date, and the regulated search foundations might need time to cohort themselves, put themselves together in a more formal and regulated way to actually proceed.

Okay, regarding your second question, I will take a shot at it. Basically, you're asking about the capital line model. Right now, the revenue share model with the financial partners, basically, in terms of revenue account, roughly about 20% to 30%. I think this will continue to be our target for the remaining of the year. Obviously, this is the balance between the risk you are taking versus the profitability, right? So if we increase the risk-taking on the business side, obviously this will increase the profitability. But if you want to be kind of more capitalized, obviously you're taking less risks than this is the balance we have to take. So I think directionally from the company perspective, we do want to gradually increase the capitalized model. And what will help us in this regard is that we have the tech empowerment business that we have with the medium to smaller-sized banks. And with the increase of that business, obviously, we will increase the rev share with the financial partners. Eventually, this will lead to a gradual increase of the capitalized model. Hope this answers your question.

Thank you very much. With that, I'd like to hand the call back to the management for closing remarks. Thank you.

Thank you again, everyone, for joining us today. If you have further questions, please contact us via our contact information available on our IR website. Thank you.

Thanks. Bye-bye. Let's conclude today's conference call. Thank you for your participation. You may now disconnect.