LexinFintech Holdings Ltd.

And welcome to the Lushin FinTech second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand has been raised. Please be advised that today's conference is being recorded. It is now my pleasure to introduce IR Director, Mandy Dong.

Thank you. Hello, everyone. Welcome to Le Xin's second quarter 2023 earnings conference call. Our results were issued earlier today and can be found on our IR website. Joining me today are our CEO, Jay Hsiao, President, Jared Wu, and CFO, Things Done. Before we get started, I'd like to remind you of our safe harbor statement in our earnings press release, which also applies to this call. During the call, we may refer to business outlook and forward-looking statements, which are based on our current plans, estimates, and projections. The actual results may differ materially, and we undertake no obligation to update any forward-looking statements. But unless otherwise stated, all figures mentioned are in RMB. Jay will first provide an update on our overall performance. James will cover the financial results in more details. And lastly, Jared will then discuss risk management. I will now turn the call over to Jay. His remarks will be in Chinese. and the English translation will follow.

Hello, everyone. I am very happy to share with you the performance of our second quarter of 2023. In the current economic environment, we have adopted a steady business strategy and achieved another good quarter of performance. The second quarter's trading volume is 6.39 billion, which has increased by 30% compared to the previous performance index, which exceeded the previous performance index again. The management volume is 11.41 billion, which has increased by 32%.

Hello, everyone. It's my pleasure to share with you our performance for the second quarter of 2023. In the current macroeconomic environment, we have achieved another strong quarterly result by adopting a prudent business approach. Loan volume for the second quarter was RMB, 63.9 billion, up 30% year-over-year, once again exceeding the high end of our guidance. Loan balance reached RMB 114.1 billion, up 32% year-over-year. Revenue was RMB 3.1 billion, up 27% year-over-year. Net profit was RMB 356 million, up 112% year-over-year.

In the second quarter, we stick to the two-way movement of risk management, and continue to mechanize operation, and replace and upgrade the risk recognition system for users, and significantly increase the value of new assets. E-commerce business grows rapidly, and the co-effectiveness of consumer credit business is further strengthened. In the second quarter, we adhered to the two main focuses of risk and data, pushed forward more refined operations, iteratively upgraded

user risk identification system, and improve the quality of new assets. The e-commerce business grew rapidly, and synergies with the main consumer finance business got further enhanced. We have achieved solid business growth for the five consecutive quarters, with profitability and cash flow improving significantly. In addition, we attached great importance to compliance capability building and successfully completed the stage-by-stage credit reform, which was to disconnect with financial institutions. In Chinese, 算值联, as scheduled in accordance with the June 30 end-day compliance requirements. There were three highlights of the second quarter results.

First, the new plan brings asset structure optimization and further increases the customer base ratio. In the second quarter, we will further treat the optimization model to increase the risk detection capability, and the accuracy of user detection continues to increase. In terms of customer operation, based on the ability to increase sales efficiency, the second quarter e-commerce, the second quarter e-sale cost reduced by 39% and the sales efficiency increased by 16%. In terms of the operation of clean users, the rate of down payment for new users in the second quarter increased from 40% to 90%, and the rate of loss decreased by 20%. The operation effect of clean users has significantly improved. In terms of new customer operations, in the case of basic payment for customers, the number of new customers in the second quarter increased by 14.9% in comparison with the number of new customers in the second quarter. The further sophisticated operation also brings an increase in the quality of the products, and the contribution of the new customers contributed by users from 80% in the second quarter last year to 92% in the second quarter. Second quarter, we continued to iterate and hone our models

to strengthen our risk identification capabilities and improve the accuracy of user identification. In terms of existing customer operations, thanks to our improving capabilities, marketing efficiency reached a higher level. In the second quarter, marketing efficiency increased by 16%, while telemarketing causes decreased by 39% sequentially. In terms of the operation of settled users, the order rate of the re-approved users in the same month increased from 40-40% to 90-90%, and day one delinquency rate decreased by 20%, which manifested our notable operation improvement. In terms of new customer operations, the number of new active users increased by 14.9% in the second quarter compared to Q1, while customer acquisition costs remained basically flattish. Continued refinement of operations also brought us a steadily improvement in asset quality. The proportion of new loans contributed by high-quality users rose to 92% from 80-80 in the second quarter of last year. while the day one delinquency rate in the second quarter fell by nearly 10% on a quarter-over-quarter sequential basis. Although the asset quality of existing loans fluctuated slightly due to a specific industry event and the macro environment, we believe overall asset quality will continue to improve as we acquire more and more high-quality users.

The second bright point is the rapid growth of e-commerce businesses. Businesses' ecological advantages have been further improved. In the second quarter, the transaction volume of 14.87 billion yuan has been realized, with a growth of 31.6% and a growth of 34.5%. More than 10.7% of the total consumption of social consumer goods in the second quarter. During the 618 period, e-commerce businesses also obtained 44% of the transaction volume. The number of users has also increased significantly. In the second quarter, e-commerce business increased by 24.2% compared to 36.4% in May. E-commerce business has been focused on high-growth consumer rights, surrounding young users' favorite new trends, continuing to expand into high-quality commercial and more suitable for separate consumption fashion sports, international car and other categories. As more commercial households and product categories expand, A large number of users were caught up in the interaction between e-commerce and consumer modernization. During the 618 period, the e-commerce consumer population grew significantly, leading to a positive growth in consumer modernization and an increase in active customers. In June, it increased by about 4% compared to April. At the same time, the number of active users of consumer modernization has further increased the consumption of e-commerce, which has led to a circular increase in business ecology. Secondly, we saw the rapid growth of our e-commerce business and the further enhanced synergies among different business segments

in our Luoxin consumption ecosystem. In the second quarter, the e-commerce business achieved a transaction volume of RMB 1.49 billion, up 31.6% Q&Q and 34.5% year-over-year, exceeding the 10.7% year-over-year growth rate of total retail sales of consumer goods, and the e-commerce business achieved a 44-year-over-year growth rate of transaction volume during the June 18th Shopping Festival period. The number of users also grew substantially. In the second quarter, the number of active users in the e-commerce business grew 24.2% Q&Q and 36.4% year-over-year. The e-commerce business has been focusing on high-quality and high-growth young consumer groups who fancy new trendy goodies. Therefore, we continued to introduce high-quality merchants, such as fashion, sports, and international luxury brands that are more suitable for installment consumption. With more merchants and product categories introduced on our e-commerce platform, a large number of existing users have been revitalized, resulting in the synergy between e-commerce and the consumer finance business. During the June 18th shopping festival period, the significant growth in the e-commerce consumer traffic led to a rise in the number of quality active users in the consumer finance business, with an increase of approximately 4% in June compared to April. At the same time, the active users in the consumer finance business have further stimulated the e-commerce consumption, resulting in a mutually reinforced loop in the business ecosystem. We have seen further reinforced synergies between e-commerce platform and consumer finance in terms of acquiring new customers and boosting existing users' activities. Attributing to our unique Lexin consumption ecosystem, in July, we won the award of Best Digital Customer Ecosystem Initiative in China by the industry-renowned Asian bankers.

The third point is that the cash flow of Lexin has been strong for five consecutive seasons. In the second season, Lexin's net profit rate The company decided to launch a dividend policy to increase shareholder value. It also represents our long-term confidence in the company. In 2023, it is expected that a split will be carried out every six months. The split ratio is 15% to 30% in the past six months. In the third quarter of 2023, according to the company's average stock price of $0.058 per ATS, the amount of cash split will be distributed to two average stocks.

Thirdly, we have successfully delivered five consecutive quarters of solid business growth and a strong cash flow. In the second quarter, our net margin rose to 11.6%, a 4.7% increase on a year-over-year basis. Cash flow remained strong and increased by 30.2 compared to the year end of fiscal year 2022. We have always taken a firm stance to implement a two-wheel drive strategy of risk and data, which essentially fueled the turnaround of our business since the nadir in the Q2 of 2022. The second quarter in 2023 is the fifth growing quarter in a row, and we expect the momentum to continue. Taking the above mentioned into consideration, the board approved and decided to distribute recurring cash dividends aiming to improve return to our shareholders and express our full confidence in the business prospects in the long run. Starting from the second fiscal quarter of 2023, we will distribute a recurring cash dividend semi-annually at an amount equivalent to approximately 15.15% to 30.30% of the company's net profit in the previous six-month period or as otherwise authorized by the board. In Q3, we will distribute a dividend of US$5.8 per ordinary share or U.S. dollar 11.6 cents per ADS. For the six-month period ended June 30, 2023, representing approximately 20 to 0% of net profit for the period of the first half 2023. 业绩物件增长的是我们所坚持的风险数据双轮驱动。

In terms of technology, Ergidu's operating cost is 1.2 billion yuan. We will continue to stay ahead of the market, especially in the application of large language model applications. We have accelerated the application of large language model technology in the field of financial hammering to improve the efficiency of operations and customer experience. In terms of business and machine application, the large model has already landed in the business scene of e-commerce, customer service, and review. After applying the large model, The number of machines involved and the increase in efficiency and stability are 91.5% compared to last year's second quarter, with an increase of 8.2% in each percentage point. In terms of software support applications, after the development of code support and the creation of design and innovation, in the second quarter, we will further analyze the data, expand, upgrade, optimize, and organize in the field, and greatly reduce the threshold for data analysis.

It is our continuous implementation of a two-wheel drive strategy that effectively boosted the steady growth of our business. On the front of technology investment, in Q2, research and development expenses reached RMB 120 million, maintaining the industry lean level. It's worth noting that we accelerated the development of the use case of AI large language models in finance sector. This model has been incorporated into our chat robots that are used in the daily operation of tele-sale, smart customer service, and operation inspection. Thanks to the application, we saw ongoing improvements in our operational efficiency and a refined user experience. For example, in terms of customer service application, percentage of cases solved without human intervention increased to 91.5%, which got 8.2% higher on a year-over-year basis. Regarding the use case in smart assistant service, in addition to coding assistant tools, and initiative of design we talked about in last quarter. We further applied to data analysis, the design, and optimization of risk management database, which boosted the analysis efficiency and reduced employees' workload.

has helped hundreds of thousands of small and medium-sized enterprises and private factories in the past year, covering more than 300 cities in more than 30 provinces and cities across the country. In addition, in terms of consumer rights protection, Le Xin Secondary and supervision agencies, police, lawyers, industry associations, financial institutions, etc. have cooperated to develop a series of fire protection special effects. Information security capabilities have also been approved by the Chinese Information and Communications Research Institute, the China Network Security Industry Alliance, and other countries and institutions.

Last but not least, let me give you an update on our progress in social responsibility. Since we launched small store supporting projects focusing to facilitate the financing needs of SME, we have helped over 100,000 SME owners in over 300 cities and 30 provinces. In addition, on the front of customer protection, We worked together with regulators, the police, lawyers, and industry associations and financial institutions. Our capability in terms of data security got further recognition from national level institutions such as the China Academy of Information and Communication Technology and the China Cyber Security Industry Alliance.

Looking ahead, in the face of the complex and uncertain macro environment, we will remain the prudent business approach, continuously push ahead strategies of risk management integrating and customer-based upgrading.

and deliver higher quality growth. Next, I will pass to our CFO, James, for financial updates.

Thank you, Jay. I will now provide more details on our financial results. Please note that all numbers are in RMB unless otherwise stated. The second quarter marked our fifth consecutive quarter of rebound since we bottomed out from the trough in Q1 of last year. We delivered another quarter of healthy growth, both in overall operating and financial numbers. This is not an easy achievement amidst the relatively mild consumption recovery in the second quarter. Thanks to our continuous efforts on reconstructing risk management capabilities, upgrading to a better customer base, refining the operations, and cost optimization initiatives. We believe we have planted the right seeds by undertaking the above mentioned strategies and expect to reap more benefits of such improvements in the coming quarters. First, please let me elaborate at a high level on what happened in this quarter as compared with the same quarter of 2022. Total loan originations for the quarter reached 63.9 billion, an increase of 30.1% year-over-year, beating the high end of Q2 guidance we gave earlier. Revenue grew by 26.6% year-over-year to reach around 3.1 billion for the quarter, which was mainly driven by the GMV growth and the increased loan balance, which reached 114 billion. As a result of our customer base upgrading, better quality customers usually generate larger ticket size loads, hence contributing the GMB growth. The strong revenue growth was achieved despite the fact that the weighted average APR fell below 24% in Q2, around 1% point lower than a year ago. Loans with APR under 24% now made up over 86% of all loans, more than 5% higher than one year ago. Another contributing factor was the funding cost, which stood at 6.6% during this quarter, a decrease from 7.2% a year ago. As the corporations with new funding partner banks continue to roll out, we expect lower funding costs in the coming quarters. In addition, the loan tenor was 14.7 months versus 12.8 months in Q2 last year, also contributing to the revenue growth. However, amidst the increased macro incentives, we have started to optimize the tenor structure earlier this year to reduce the potential exposures. We continue to sharpen our focus on iterating and refining risk management capabilities in the second quarter, upholding risk management as our top business priority. Asset quality steadily traded better. For instance, day one delinquency rate got lower. We also further improved accuracy of credit profiling and risk management efficiency. Due to the short-term turmoil in the post-loan collection industry caused by some certain company-specific incident, our 30-day-plus delinquency rate and a 90-day-plus delinquency rate fluctuated a bit, but still better than one year ago, standing at 2.59% and 4.61%, respectively, versus 2.63% and 4.85%. In Q2, as we continue to push ahead cost efficiency initiatives, total operating related costs and expenses, including processing and servicing costs, sales and marketing, R&D, and G&A as a percentage of average loan balance dropped notably to 1.01% versus 1.43% in Q2 of last year. indicating a 42 basis point of cost reduction. On the going forward basis, we are fully committed to continue the cost optimization initiatives as one of the long-term strategies. As a result of the affirmation, we're able to report a net income of $356 million, an increase of 112% year-over-year. The net margin improved to 11.6% versus 6.9% in Q2 last year. We have seen substantial improvements in operational efficiency and profitability compared to one year ago, which clearly serves as a strong testament of our ability to sustain the V-shaped rebound. Apart from the above year-over-year analysis, I would also like to share some perspectives through our quarterly comparison. In Q2, total $63.9 billion, an increase of 4.9% quarter-over-quarter, as we maintained a prudent growth approach considering the weary consumer spending. It's worth mentioning that we fully leveraged our nursing consumption ecosystem and well captured the growth opportunity during the June 18th Shopping Festival. As a result, we were able to deliver a faster than expected 31.6% quote-over-quote GMB growth on e-commerce platform. We also expanded product offerings and introduced more high margin SKUs in order to boost the gross profit of e-commerce business line. Consumer finance take rate fell slightly to 2.3% from 2.5% of last quarter. The slight fluctuation in take rate is a combined result of the lowered APR, which stood at 23.6% versus 24.4% in Q1. and more bookings of provisions due to the overall market uncertainty and the shortened tenor. The tenor is now at 14.7 months versus 15.1 months of the previous quarter. Consequently, the total operating revenue for Q2 booked an increase of 2.4% quarter over quarter, among which revenue from tech empowerment service registered a 6.5% increase quarter over quarter. And the revenue from the installment e-commerce recorded an increase of 5.5% quarter over quarter. The e-commerce revenue growth was lower than GMV growth due to the increased platform service or pop business instead of the company directly sourcing and selling the merchandising. Therefore, more revenue is booked on the net basis. Overall operating expenses stayed almost flat despite 3% growth in sales and marketing-related costs driven by the user growth. Offsetting the sales and marketing cost increase is the decrease in G&A and R&D expense due to efficiencies. Therefore, we achieved a sequential growth in net income of 8.6% and further enhanced the net margin to 11.6% from 11% in the last quarter. To conclude, we have registered a strong improvement during the second quarter from both year-over-year and quarter-over-quarter perspective. This solid result was achieved under current macro uncertainties and slowing economic recoveries. At the end of second quarter, the company had a cash position of around $5.5 billion on hand and net equity position of $9.4 billion. In view of the healthy cash flow situation, the board approved the semi-annual dividend plan. The cash flow from operations is improving and robust to sustain future growth thanks to increasing profitability more efficient guaranteed deposit required for the loan facilitation business. This also demonstrates our confidence in the overall business to continuously produce shareholder returns. Finally, I would like to update our outlook for the second half of 2023. Based on the company's preliminary assessment of the current market conditions and the macro situation, the company reaffirms the early of the year guidance of annual GMV amount of 245 to 255 billion, which represents a 20 to 25% year-over-year growth. Therefore, for the second half of the year, we're expecting the high single digit to mid-teens percentage growth year-over-year. These estimates reflect the company's current expectation, which is subject to change. Second quarter results represented the fifth consecutive quarter of continued rebounding both in operating metrics and the financials. It further solidifies our commitment to continue the turnaround journey despite possible headwinds from the macro uncertainties. 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.

In the second quarter, we continued to promote our strategies of focusing on risk management and upgrading customer growth.

and had achieved notable results in several aspects. The overall day one delinquency rate continued to drop, down nearly 10% compared to Q1. The 30 days and 90 days delinquency rate were effectively stabilized within a manageable range.

In terms of data mining and model relaying, we continue to expand our data mining and application

In terms of data mining and the model iteration, we continued to increase the utilization of PBOC's data, third-party data, and internal data from our leasing consumption ecosystem and upgraded the model matrix of each business line. As a result, we managed to to improve the accuracy of identifying user risk levels and credit needs.

On the front of IT infrastructures, we successfully developed

a simulation system for operational decision-making empowered by AI technology. The system can generate operation decisions for monthly order within one minute with over 95% accuracy, which essentially boosts our business decision-making through big data and AI models. To pursue and optimize the balance between risk and return, we started to adjust our tenor structure of overall portfolios and a generation plan for loan tenor loans. Thus, the average tenor of new loans steadily declined, and we expected to trend shorter in Q3. In the aspect of post-loan collection operations, due to the turmoil in the loan collection industry and the impact from anti-collection criminal groups, our asset quality metrics related to post-loan performance got impacted to some extent. Thanks to our prompt carrying out of countermeasures, The impact is gradually fading out.

We have continuously honed our fundamental risk management capabilities this year.

Therefore, we effectively improved our capability in credit profile identification and efficiency in risk management. As a whole, we are seeing essential progress in risk management capabilities and a steady improving trend in asset quality. We remain in full confidence that every endeavor we make today will certainly bear more fruit in the coming quarters and lead to a qualitative leap forward on the front of risk management and asset quality. This concluded our prepared remarks. Operator, we can now open the floor for questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. One moment, please, for our first question.

And our first question comes from the line of Frank Zeng with Credit Suisse.

感谢管理层给我第一个提问的机会。 我有两个问题。 第一个问题是关于三季度和下半年展望的。 相信管理层给我们更多一些color 对于各个operating metrics 在下半年和三季度的情况。 以及咱们最新看到的七月和八月的贷款需求 thank you management for giving me the opportunity to ask questions i have two questions The first one is on the outlook for various operating metrics in the third quarter as well as in the second half. How is the credit demand in July and August in view of the micro headwind? And the second question is on asset quality. As mentioned previously, due to the change in loan collection industry, there is some fluctuation in asset quality. What's the impact so far? And also, could management share more updates on future outlook of asset quality. Thank you very much.

Okay, let me answer this question. First of all, from the whole growth situation, we expect to maintain a steady growth rate throughout the year. Our annual growth rate is 24.5 billion to 25.5 billion. I think this year, China's economy is still It's not good to show signs of not recovering at present. So we are also trying to control the whole growth, the whole rhythm. Under the current environment, we are taking a more cautious approach. We will pay more attention to profitability. We prioritize profitability. So I think in this respect, we can see that in the second half of the year, It depends on the economic recovery of the whole situation to determine what kind of growth strategy we will have. In fact, from now on, the demand in July and August is actually similar to that of the second quarter. And that is to say, in the whole of July and August, in terms of the entire demand, in fact, because the economic situation is not good, everyone's confidence in consumption is insufficient. So I think in the whole of a I'd like to add a little bit more. Basically, in view of the uncertainties in the macro situation, we're going to stick to our original early of the year guidance of 245 to 255

billion GMB growth. That represents 20 to 25% year-over-year growth. As a matter of fact, while we have completed the first half of the year already, if you look at the numbers, we have achieved 35% year-over-year growth up to this point. So that means if we look at the whole year of 20 to 25%, for the second half, we'll be looking at basically a GMB growth of high single-digit to probably mid-teens growth in terms of GMV. And really this is because we are adopting a very prudent kind of approach in terms of the business growth. We would like to kind of more of looking at the stabilize the overall scale, the overall GMV growth, but really put the risk management and also the net income, the overall profitability as the first priority when we go with our operations for the second half.

Okay, so Frank, I'll do the translation for Jay. For your first question, we do still, like James said, we expect the full year guidance to maintain within the range of 245 to 255 billion. And I think this year, as of right now, the macro recovery is not too optimistic as we were hoping to or expecting earlier this year. And we're actually consciously controlling our increasing pace. And right now, depending on the macro environment. Right now, we're taking a more prudent business approach. We're focusing more on profitability as our priority. And for the second half, the increasing pace of our business expansion really depends on the macro recovery conditions. And from the company's operational level, the demand growth in July and August is more or less similar to the second quarter and we don't see a very strong recovery trend. So the third quarter will be more on rhythm of growth, again, focusing more on profitability, and it will remain more or less stable.

Another question is in terms of asset quality. In fact, we see that the economic downturn is also a greater pressure on the entire asset quality. In the second quarter, in fact, the entire industry, we all suffered some attacks from the entire black and gray industry, that is, malicious complaints. In addition to that, there are some external companies that do outsourcing, and there are some problems. This will also bring some pressure on our entire recovery. I think we are also working hard to improve the quality of our new assets. In fact, the quality of our new assets is gradually improving. We also mentioned a lot of quality data about new assets earlier. So the change in our new assets and the decline in the recovery rate may have a negative effect on each other. So we expect that in the future, there will still be economic pressure. We think that the whole risk will still be a challenge, but we still believe that we have the ability to keep adjusting the quality of our new assets to achieve a stable operation of our future risk.

In terms of your second question, as I mentioned before, with the macroeconomy being down a little, it did put some pressure on our asset quality. In the second quarter, with the known industry impact from the certain collection issues having with the certain collection companies, we did bear some burden. It did impact our collection rate or our 30-day collection rate. But we are putting on more efforts improving on our new asset quality. As we mentioned earlier in our script, the overall asset quality for our new assets are actually improving. And then it, in turn, reflected on a lower 30-day correction rate. And it kind of evened out the overall data. In the future, with the macro not being in the recovery process, we were kind of hoping to, there will still be some challenge on our risk level, but we're confident as we input for taking in more good quality new assets, the overall asset quality will get better. I hope that answers your question, Fran.

Thank you. One moment, please, for our next question. And our next question comes from the line of Alex Yeh with UBS.

Hello, Mr. Guan. The first question is about our e-commerce business. Mr. Guan just mentioned in the call that our e-commerce performance in the second quarter is also very bright. Can you give us an introduction of the factors that drive us and a development plan for this business in the future? The second question is about e-commerce business line. So Benjamin has mentioned in the remarks that the business line has grown rapidly in Q2. Can you elaborate a bit more on the drivers and your future plans for this business? Second, there's some measuring about the e-commerce business line being a part of the Lexin ecosystem. Could you also get some color on the update on Lexin's consumption ecosystem as a whole? Thank you.

Let me answer these two questions. In the e-commerce business, we have been focusing on young, high-quality, and high-growth people. In the second quarter, we have continued to expand the entire category of people for this part of the group, introducing more quality products, increasing the abundance of products, and promoting the sales of users. The second point is that there is a 618 e-commerce shopping festival in the second quarter. So we have strengthened the operation under 618. So it has brought good results. The third one I think is that we have been focusing on the genes of the entire consumption and scene. So we have surrounded the entire user, strengthened the exact match between the entire user and the product. So we have brought the entire user, the entire potential of the entire consumption. So I think in the e-commerce business, in the whole ecosystem and field, it has a very important role. It can help us get customers. Because some lost customers, they don't actually have a need for money. Then we can use e-commerce to further expand the needs of the entire consumer. Another one, it's in our whole We've been focusing on high-quality and potential users.

And for the last quarter, we continue to expand our categories and introduce high-quality merchants as well as increasing our category to fit better to our target audience. And also, we've been leveraging on the 618 e-commerce shopping festivals, and we've increased our operational efforts and our promotional range, which resulted in a very remarkable result. And a more fundamental reason is that we actually rooted... Back to today, we're rooted in the consumer genes of the Lishing Group. We have created a consumer ecosystem that centers around good quality, high potential users, and the synergies between e-commerce and business and our consumer finances have been further strengthened. And they mutually encourage each other And specifically, our e-commerce platform actually helps us when it comes to customer acquisition as well as revitalizing the already settled customers that are creating such synergies between two platforms and business.

Okay. The second one is about the business environment. So, we started with the whole analysis of the business environment. We have established a multi-business system around consumption. This includes our core business, which is consumer credit, as well as our e-commerce branch, which is based on technology retail, as well as our general financial business, which is based on offline exhibition, as well as our entire financial literacy business, which is exported for financial institutions, as well as other innovative product lines. We have provided our customers with a whole range of services and an ecosystem. We just talked about some of the progress of our e-commerce business. In fact, we are still in the process of continuing our digital business and our offline business. I believe that in the future, after we have more data, we will report to you.

So Loshing started from the installment e-commerce business, which gradually built up Loshing's multi-segment consumer ecosystem, which includes consumer finance as the main business, accompanied by the installment e-commerce business, offline customer acquisition finance business, the SaaS business for providing services to financial institutions, and innovative business, which is a multi-business line and an all-around ecosystem of providing credit services to customers. And as we just introduced prior, the progress of our e-commerce business in the second quarter, our SaaS business for financial institutions and our Pukui offline team business are developing steadily as expected and according to our plan. And we believe that we will have a more scalable and more notable business, more significant results to actually share with you in the future. Hope that answers your question, Alex.

Sure, thank you.

Thank you.

One moment, please, for our next question. Your next question comes from the line of Yada Li with CICC.

Hello, Mr. Wang. Thank you for giving me this opportunity. I have a small question for Mr. Wang. Hello, management. Thank you for taking my question. My question is about, can the management elaborate more about the reasons on approving the dividend policy under current circumstances and other potential impacts on the company cash flow? That's all. Thank you.

Okay, I'll attack this question. In view of the macro economic uncertainties, obviously we're maintaining a very prudent approach in terms of business growth. So we are basically trying to look at more stabilized, stabilizing the overall kind of scale, but really put the focus on risk management and profit. So basically, if you put more focus on risk management and profit, this will actually generate more profit. So we continue to see the growth in profit opportunities. Plus, we continue to take cost optimization initiatives as one of our long-term initiatives. This will also lead to higher profitability down the road. So basically, the cash flow from operation is sufficient and robust to support future business expansion. And as we announced earlier of the year, we also have kind of restructured our original convertible bond with PAG. So the payment to the PAG actually is not an issue for us anymore. As a matter of fact, we have paid half of the original convertible bond amount. So cash is sufficient. And we feel that dividends really is a more direct and tangible way to reward the shareholders at this time. So that's why the board has approved our plan to start giving out the dividend on the semi-annual basis in the range of 15 to 30 percent of the net income as a recurring policy. So really this underscores the overall management's confidence in the operations of the business. So hopefully this answers your question.

Thank you very much. Thank you. I'll now hand the call back for any closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.