LexinFintech Holdings Ltd.

Good day and thank you for standing by. Welcome to Le Signe first quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. Please translate your question to English and mute yourself after your question. you will then hear automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Will Tan, Head of Capital Markets. Please go ahead.

Thank you, operator. Hello, everyone.

Welcome. first quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our chairman and CEO, Mr. J. Wenjie Xiao, who will provide an update on overall performance and strategies of our business. Our CRO, Mr. Armin Sanwenqiao, will then provide more details on our risk management initiatives and updates. Lastly, Our CFO, Mr. James Sun, will discuss our financial performance. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Last, please note that all figures are presented in Renminbi terms, and all comparisons are made on quarter-over-quarter basis, unless otherwise stated. Please kindly note Jay and Arvind will give their whole remarks in Chinese first. Then the English version will be delivered by Jay's and Arvind's AI-based voices. With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Le Xi.

Please. Hello, everyone. I'm very happy to share with you the results of our first quarter of 2025. Facing the uncertainty of the global environment, In the first quarter of this year, GAAP's net profit has skyrocketed, reaching 4.3 billion yuan in the first 13 quarters of the year. The total profit has skyrocketed by 18.6% and 113.4% in total. The performance of the first quarter shows that the company has been holding on to its risks and data for the past two years, and the strategic transformation to realize the mechanized operation has been successful. We have now completed this unsatisfactory transformation. into a new stage of high-quality development. The change in the underlying power will bring about continuous value-added implementation. We are fully confident in the performance of this year and the whole year. The risks over the past two years are a strategic transformation of data. We insist on the risk priority to fully upgrade the underlying power of the business, and to implement strategies to deal with wind control, marketing, operation, and other life cycle. At the same time, we have strengthened the construction of system power, to achieve the effective combination of risk and business. So far, we have completed the upgrade of the new risk system and the construction of risk-based facilities, and built a comprehensive chain of mass management analysis systems to achieve the price-to-price differentiation for different customers, and to significantly improve the operational capability. Lexin's multi-business ecosystem has achieved good progress. Personal consumer-centered business, through the model decision-making of pre-made traffic allocation, The customer performance and efficiency are significantly enhanced. In the price of X1, the low-level introduction of random circulation, flexible system, and Lejin card LeZhouZhuan, etc. to form a product system to optimize the price, interest rate, and deadline, so that the offer is more competitive. The split sales business has acquired an independent risk system, upgraded the supply chain, and widened the user's business boundary to match the X1 products and split services for different users. The low-level split pass rate China's share price has been greatly improved, and the scale of sales has increased by 16.2%. In the face of small and medium-sized businesses, small and medium-sized businesses have been able to take advantage of the accurate matching and high-quality user-sufficiency ratio for their business. This has reduced the risk and increased the competitiveness of the product market. As the small and medium-sized businesses, such as small and medium-sized businesses, as well as small and medium-sized businesses, as well as small and medium-sized businesses, as well as small and medium-sized businesses, The trading volume below the 4-5-line area accounted for more than 70%, and the profit grew rapidly. In terms of overseas business, to complete the financial product upgrade and transformation for Mexico and Indonesia, to improve the risk system in Central Taiwan, and to improve the operating capacity of goods channels, the cost of goods in the first quarter decreased by 19%, and the overall profit was achieved. The mature wind control technology and the ability of Central Taiwan to let us open more overseas markets, With the maturity and development of each business, the positive business environment will gradually become our unique core competitiveness. In the future, we will focus on the following several aspects of work. First, we will use users as the center, improve customer experience, promote the long-term stable growth of high-quality users, and increase the product construction with a positive effect. We will provide competitive offers and flexible payment methods, strengthen users' annuality, and surround users' life cycle to create better products and services. Pay attention to the construction of energy efficiency, optimize user focus and service experience, and improve customer satisfaction. Second, strengthen the ecosystem of ecological business. Continue to build a unique and diversified competitive advantage. Match different users with diversified products and services. Cover users' life cycle, easy consumption, flexible and accurate consumption and credit needs. Separate sales business for the needs of diversified people with different risk performance. Perfect the product supply chain, stimulate the potential of different customer groups. Increase the exchange rate of high-quality users. Play the role of customers and workers. In the face of small and medium-sized enterprises, support financial business. Play the role of the offline direct customer team and precise one-to-one service. Deep into low-end cities, industrial areas and professional markets. Explore and improve more business models. Strengthen digitalized business and penetration. Increase the high-quality small and medium-sized customer base. Personal consumer-oriented business will focus on expanding high-quality customer channels. Digging the potential of cooperation with major platforms, widening the business boundary of the company, and maintaining the growth of the scale. Third, increase the investment in technology, especially in the investment in AI, so that AI can restore various business scenarios. Increase competitiveness, through localization, mature and efficient AI models, speed up business processes, increase business efficiency, reduce service costs, and explore AI intelligence with financial adaptability. deep application in the front-end strategy and assist in the production field. Through autonomous decision-making and task execution, drive customers, operation, wind control, etc., the process of automation and decision-making are automated, and further enhance the company's sophisticated operating capabilities. Looking forward to the change of the industry in the face of the fluctuation of the global environment in 2025, and the many challenges of geopolitical uncertainty, with the continuous strengthening of human resources and the unique multi-business ecological advantage, we will We have greatly improved our operating capacity and performance. We are very confident in the continued growth of our profits in 2025. Therefore, we will continue to work hard in 2025. The company has always paid great attention to shareholder feedback and has tried to return value to shareholders in various ways. In November last year, we announced that from the beginning of 2025, Thanks for joining us today for our first quarter 2025 earnings call.

Despite ongoing macroeconomic uncertainties, our gap net profit reached $430 million, a record high in 13 quarters, representing quarter-over-quarter growth of 18.6% and year-over-year growth of 113%. Our first quarter results demonstrate the success of our two-year transformation, centering on building a model driven by data analytics, risk management, and refined operations. Having completed this challenging transformation, we have entered a new phase of high-quality development. The fundamental enhancement of our core capabilities will drive sustained value creation moving forward and we remain confident in delivering our full-year performance targets. Over the past two years of transformation, we have adhered to a risk-first approach, comprehensively upgrading our core business capabilities. We have iterated and optimized the full lifecycle strategy, covering risk management, marketing, and operations, while also strengthening our system infrastructure to achieve effective coordination between risk management and business development. By far, we have completed the upgrade of our risk management framework and established robust risk management infrastructure. Furthermore, we have built a comprehensive quantitative business analysis framework that supports differentiated credit assessment and pricing strategies tailored to various customer segments. These initiatives have resulted in significant enhancements to our refined operations. Lexin has also achieved significant progress across multiple ecosystem businesses For our online consumer finance business, we have notably enhanced customer acquisition capabilities and efficiency by implementing model-based decision-making upfront at the traffic allocation stage. Building on our differentiated pricing strategy, we launched the on-demand credit product. flexible loan in the first quarter, featuring flexible use of credit and repayment. The new product, together with our existing products, forms a competitive product matrix. Our overall product offering features optimized credit lines, rates, and tenors, making our financial solutions more competitive in the market. For our installment, eCommerce Business, We've revamped the risk management system, upgraded the e-commerce supply chain, and expanded the boundary of user development. We match different users with tailored installment services. As a result, approval rate of installment applications increased significantly in the first quarter, driving e-commerce GMV to increase by 16.2%. For our offline inclusive finance business, targeting small and micro business owners, quantitative assessment is combined with manual review to accurately determine the credit lines granted for high quality users. In the first quarter, our offline inclusive finance business not only saw lower risks, but also higher product competitiveness as we continued to increase penetration of small and micro business owners in lower tier cities and strengthen localized operations. GMV from Tier 4, Tier 5, and lower regions has accounted for over 70% of our inclusive finance GMV in the first quarter, alongside sequential profit growth. For our overseas business, we have completed the upgrading of financial products in the Mexico and Indonesia markets, improved the risk management system, and enhanced the operational capabilities of customer acquisition channels. In the first quarter, customer acquisition cost decreased by 19% quarter over quarter, and the overseas business have achieved profitability. Our matured risk management capabilities, technological strength, and back office support enable us to expand into more overseas markets. As these businesses develop and mature, Lexin's ecosystem will gradually become our unique competitive edge. Moving forward, we will focus on the following areas. Firstly, we will maintain a user-centric approach, focusing on enhancing user experience and promoting the steady growth of high-quality customers. Our strategy involves strengthening our product portfolio with more competitive offers and flexible repayment methods designed to boost user loyalty throughout the entire customer lifecycle. Additionally, consumer protection will remain a priority. We will continue to optimize customer engagement and service experiences in order to increase overall customer satisfaction. Secondly, we will strengthen synergies across our ecosystem businesses to further build our unique and differentiated competitive advantage. We will match diverse products and services to different user segments. addressing their demands for carefree consumption and flexible liquidity throughout their entire life cycle. For the installment e-commerce business, we will improve the merchandise supply chain to meet the differentiated demands of users with varying risk profiles. This will help unlock consumption potential across different customer tiers and increase GMV from high-quality users, enhancing customer engagement and acquisition. For the inclusive finance business, we will leverage our in-house offline team's capabilities in customer acquisition and personalize one-on-one service. We will deepen our presence in industrial clusters and specialized markets in lower-tier cities. explore and refine various business models, and strengthen localized operations and deepen market penetration to increase the share of quality micro-business owner customers. For the online consumer finance business, we will focus on expanding high-quality customer acquisition channels, tapping into the potential of large platform partnerships, and broadening our business boundaries to maintain sustainable growth and scale. Thirdly, we'll increase investment in technology, particularly in applying AI to empower various business scenarios and enhance the company's competitiveness by locally deploying mature and high-performance large AI models. We will reshape business processes, improve operational efficiency, and reduce service costs. We will explore the application of AI agents with financial adaptive capabilities in the pre-lending process. to autonomous decision-making and task execution. We will promote process automation and decision intelligence in scenarios such as customer acquisition, operations and risk management, further enhancing the company's operational refinement. Despite the volatile macroeconomic environment evolving industry landscape and yielding uncertainties, our operational resilience has significantly improved thanks to our continuously enhanced capabilities and unique ecosystem advantage. Therefore, we are confident in achieving sustained growth in net profit for full-year 2025, reaffirming our full-year 2025 profit guidance of substantial year-over-year growth. The company has always attached great emphasis on shareholder returns and remains committed to delivering value to our shareholders through various channels. In November 2024, we announced to increase our cash dividend payout ratio from 20% to 25% of total net profit starting from 2025. The Board of Directors has approved to further increase the dividend payout ratio to 30% of net profit, effective from the second half of 2025. Now, I would like to give the floor to our CRO, Arvin. Thanks.

Thank you. Next, I will report on the work and progress of the risk management in the first quarter. In the first quarter, we will continue to stick to the risk-controlling, stable-scale and profitable strategy, focusing on the improvement of risk identification, the continuous optimization of the risk strategy system, and the construction of intelligent wind control tools and the active exploration of large models in the field of wind control applications. As a result, the risk of our new assets and full assets In the first quarter, the trend continues to decline compared to the fourth quarter of 2024. In the first quarter, FPD7, the new asset, fell by about 5%, and the total asset input fell by about 11%, and the total asset 90-plus bad rate fell by about 9%. Next, I would like to introduce you to the key risk management measures we adopted in the first quarter. First of all, in terms of model recognition capabilities, in the first quarter, we continue to improve the performance of all types of risk detection models. First of all, by establishing multi-modal fusion models, it is better to integrate and use text-based, continuous-based, value-based, and picture-specific purchase data to further improve the risk recognition capabilities of models. Secondly, through two-stage modeling, the middle and long-term customers identified for standard models are optimized through samples, Additional three-way data is introduced to further improve the risk distribution of this part of the customer Finally, for customers from different channels and channels, a deep joint modeling is carried out to fully utilize channel data and free data to improve the performance of the model Secondly, we strengthen the risk management of the government direction. On the one hand, we strengthen and accelerate the stability of the multi-head crowd and the risk fluctuation Increase the withdrawal amount of the large customer group and optimize the repayment reminder to improve the bank account date and the intelligence of the post-pandemic generation ability to reduce the production of bad molecules On the other hand, optimize the promotion of the offer of high-quality customers to promote high-quality asset growth, jointly promote risk reduction, asset structure and health continue to improve In the second quarter, we will more quickly according to the market situation and asset The risk performance fully utilizes the risk management tools and risk management strategy combined with the government direction to ensure that the risk level of assets continues to maintain a downward trend. Third, continue to expand the construction and application of intelligent air-to-air tools, which can greatly improve the accuracy and practicality of price decision-making and price decision-making and practicality of price decision-making and price decision-making. Complete development and construction, gradually introduce and mass-produce applications in various business scenarios, and use robot strategy development tools through A-B test confrontation to greatly improve decision-making effect and decision-making effectiveness. Through the past year, the improvement of risk capacity, the improvement of the wind control system, and the comprehensive use of intelligent wind control tools have helped us achieve a continuous decline in the risk of adding assets and all assets in four consecutive seasons. The current external environment and industry fluctuations are increasing. In the second quarter, we will continue to improve and use the risk of automatic inspection and disposal, strengthen entry and trade, Thanks Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the first quarter.

In the first quarter, we remained committed to our strategy of prioritizing asset quality, focusing on scale stability and profitability enhancement. Specifically, we focused on improving risk identification capability, optimizing risk strategy system, and developing smart risk tools, as well as actively exploring the application of large models in risk management. Thanks to the initiatives we've taken, risks of both new and overall assets maintained the downward trend in the first quarter, leading risk indicator for new loans, first payment default, FPD, over seven days of the first quarter, declined by about 5% compared to the previous quarter. On total loan portfolio... Day one delinquency ratio decreased by about 11%, and 90 days delinquency ratio decreased by 9% quarter over quarter. I will introduce in detail the key initiatives we've taken for the first quarter. Firstly, in terms of risk identification capabilities, we've continued to improve the performance of our risk identification models. We built a multimodal fusion model, integrating different types of heterogeneous data including textual time series, numerical, and graph features, which helped further improve the risk identification capabilities by 10%. Meanwhile, we deployed a two-stage modeling structure. A standard model was used to identify the mid to long tail customer groups. We then optimized the data samples and brought additional data sources to conduct more granular risk identification for these customers. further improving the risk differentiation capabilities. Besides, for customers from different channels, we conducted deep joint modeling with our channel partners. This allowed us to fully leverage both partner channel data and our own internal data to improve model performance. Secondly, we also strengthened risk management through preventive and proactive approaches. Regarding high risk assets, we adopted a preventative approach. Specifically for customers who have borrowings across multiple platforms, exhibit weaker repayment capabilities, or present volatile risk profiles, we reduced or suspended their credit lines. Additionally, we optimized repayment reminders and enhanced the auto debit repayment functionality both on and after the due date to minimize the formation of overdue assets. Regarding high-quality assets, we conducted a proactive approach. We promoted the growth of high-quality assets by strengthening the competitiveness of offers to customers. These concerted efforts have collectively contributed to reducing risks, optimizing our asset mix, and enhancing asset quality. In the second quarter, we will respond more closely to market dynamics and asset quality performance. fully leveraging a combination of proactive and preventative risk management approaches and tools to ensure the continued decline in asset risk levels. Thirdly, we continue to ramp up the development and application of intelligent risk management tools, which significantly increase the accuracy and time efficiency of credit line and pricing decision making. We have developed credit line robot and pricing robot and gradually applied them in various business scenarios. Our A-B testing results demonstrate that these robot tools substantially helped improve the effectiveness and time efficiency of decision making. Over the past year, our efforts in enhancing risk identification capabilities, building a more robust risk management framework, and applying intelligent risk management tools comprehensively have contributed to a sustained decline in risk levels for both new and total assets for four consecutive quarters, looking ahead to the second quarter of 2025. Amid increased volatility in the external environment and evolving industry dynamics, we will continue to strengthen our capabilities in automated high-risk assets screening and resolution, further refine credit approval and lending management, and swiftly identify and address potential high-risk assets. These measures are aimed at ensuring that key risk indicators remain on a downward trajectory. Next, I will hand over to our CFO, James, to provide a review of the company's financial performance for the first quarter.

Thanks, Sovereign. I will now provide a detailed overview of our first quarter financial results. Please note that all figures are presented in renminbi terms, and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. Our first quarter performance marked another strong leap forward and a well-armed fact on our profit growth roadmap. During the quarter, our net income increased by 18.6%. to $430 million and 113.4% year-over-year, even though the overall new loan volume and the loan balance declined slightly due to the Chinese New Year seasonality. Our net income margin increased to 13.9% from 9.9% last quarter. Net profit take rate calculated as the net income divided by the average loan balance increased to 1.58% from 1.31% from last quarter and 0.66% a year ago, advancing by 27 basis points sequentially. The net income margin and the net take rate all reached the highest level in the last three years, laying a solid foundation for future profit expansion. From unit economics perspective, the 27 basis point net profit take rate improvement quarter-by-quarter is led by a 47 basis point increase of revenue take rate, which is calculated by dividing the sum of credit facilitation service and the tech empowerment service income after deducting the funding and the credit cost by the average loan balance. During the quarter, the revenue take-rate increased from 6.22 percent to 6.69 percent of the previous quarter. The improvement of revenue take-rate reflects our ongoing risk-centered business transformation, which resulted in better asset quality and, therefore, a lower credit and funding cost and a refined business operations. The specific business execution involved focus on retaining prime customers through competitive loan offers, including lower prices and improved tenor, and then migrating subprime borrowers to capitalized model via intelligent credit platform, ICP, to reduce the risk exposure of optimized profitability. Next, I will provide more details in the following three highlights. First, Reduction in credit costs driven by continuous improvement in asset quality. The reduced credit costs reflected our sustained improvements in asset quality driven by our enhanced risk management capability. The following key risk indicators demonstrated improvement. On the low balance side, day one delinquency rate declined by 11%. And the 90-day delinquency ratio declined by nearly 33 basis points from 3.6% to 3.3%. On the new loan side, on quarterly basis, the first payment default rate over seven days decreased by about 5%. With higher quality new loans gradually replacing matured vintage loans, we expect to see continued asset quality improvement contributing to our profit expansion. Meanwhile, our provision coverage ratio, which is calculated as the total outstanding provisions divided by the total outstanding loan balance between 90 and 180 days, sufficiently at 268 percent, the highest level since the second quarter of 2024. Second, decrease in funding costs. Funding costs for new loans and the capital-heavy model dropped by nine basis points to 3.93%, further boosting our revenue take rate. While we've already achieved relatively low funding costs, we expect to maintain this advantage through improving asset quality, strengthening partnerships with funding partners, and diversifying our funding sources. Third, capital-light model volume growth. During the quarter, we have optimized our risk-bearing arrangements by shifting more high-risk volumes to the cap-to-light model through our Intelligent Credit Platform, ICP, where we don't take principal risks for customers with risk rating beyond our preferred range. Total volume under the cap-to-light model increased by 43% quarter-over-quarter and accounted for 28% of the total GMB up from 20% of last quarter. Under the capital heavy model, we have improved competitiveness of our offering with lower pricing and improved the tenor to attract prime customers. The APR was lowered about 100 basis points from 23.9% down to 22.6% for the last quarter. While at the same time, the user quality has improved, as evidenced by the super-prime customers taking a higher percentage of new loans. With the Capital Light model, we migrated more sub-prime customers to the ICP platform, offering risk-based pricing and shortened loan tenure to reduce overall risk exposure. As a result, the overall tenor for new loans under both capital heavy and capital light models slightly decreased quarter over quarter. To summarize the above three highlights, due to the improvement of credit costs and funding costs, our net profit take rate increased from 1.31% to 1.58% last quarter. Additionally, the capital light model volume growth has lowered the risk exposure for our bins, enabled differentiated risk-based pricing for high-risk users, enhanced risk-adjusted returns, and sustained our offer competitiveness for high-quality customers. Next, let's go through some key financial items. Total revenue from lending-related bins, which include credit facilitation and service income, and the tech empowerment service income combined decreased by 15% quarter over quarter. There are three factors attributing to the change. One, lower APR of loans and the capital heavy model as our effort to attract better quality customers as mentioned earlier. Two, increased early payoff due to more flexible early payoff terms. for offer competitiveness and the customer satisfaction. Three, the GMV volume shift to capital light model where the revenue is booked net of related credit costs, while in comparison, under the capital heavy model, gross revenue and credit costs are booked in two separate lines. Loan volume originated under the capital heavy model, decreased by 11% quarter over quarter, and accounted for 72% of total GMV, down from the 80% in the previous quarter. As a result, credit facilitation and service income, primarily associated with the capital heavy model, decreased by 19% quarter over quarter. In contrast to the decline in the credit facilitation and service income, The tech-empowered service income, which is primarily associated with our capital-line model, increased by 4% quarter-to-quarter. This revenue now accounted for 20% of total revenue, up from 16% last quarter, mainly driven by the increased volume from the capital-line model and partially offset by increased provision driven by our prudent provision estimation. Similar to the revenue side of the story, total credit costs, including total provisions and fair value change of financial guarantee derivatives and loans at fair value, decreased by 40% quarter-by-quarter. This is partially due to the net-value accounting method, as well as the contribution from the asset quality improvement. As a cross-reference, we can take a holistic view to add total revenue and credit costs and both the capital heavy and capital light models together. Total revenue from lending-related business net of total cost was about $18.2 billion, increased by 5.6% or $97 million from $17.2 billion last quarter. Separately, installment e-commerce platform service income decreased by 16.4% while GMB grew by 16.2% quarter-over-quarter. Similarly, this difference was caused by accounting difference due to the volume mix shift between the third-party sellers and the company direct sourcing. For third-party sellers, only platform service commission is recognized as the revenue rather than the entire transaction amount under the direct sourcing model. This structural volume mix change is evidenced by the sales volume from third-party seller accounting for 56% of the total e-commerce GNV in the first quarter up from 36% in the last quarter. As a result, our installment e-commerce platform service income decreased despite total e-commerce GNV increase from $970 million to $1.1 billion. Furthermore, it's worth highlighting that the gross profit from e-commerce bins more than doubled in the first quarter. As a priority within our integrated bins ecosystem, we'll keep growing our e-commerce bins moving forward by developing tailored financial solutions that actively stimulate and fulfill the evolving consumption and financing needs across diverse customer segments. We aim to diversify our revenue structure and eventually enhance the overall operational resilience and profitability. Total operating expenses, which include processing and servicing costs, sales and marketing expenses, research and development expenses, and general and administrative expenses, remain relatively stable at $1.3 billion. Driven by the affirmation factors, our net income in the first quarter increased by 18.6% quarter-over-quarter from $363 million to $430 million, and our net income margin increased from 9.9% to 13.9%. For balance sheet items, as of March 31st, our cash position, which includes cash, cash equivalents and restricted cash worth approximately 5 billion RMB. Shareholders' equity remains solid at about 11.2 billion. Looking ahead, despite challenging macroeconomic environment, evolving industry landscape, and geopolitical uncertainties, the management remains confident in achieving a significant year-over-year growth in net income, reaffirming our four-year earning guidance. This concludes our prepared remarks for today. Operator, we're now ready to take questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. And please translate your question to English and mute yourself after your question. To withdraw your question, please press star 11 again. Please stand by as we compile the Q&A roster. Just a moment for our first question, please. Our first question comes from Emma Sue from BOFA. Your line is now open.

Thank you for giving me the first chance to ask a question. Congratulations to the company for achieving excellent performance. I would like to ask this question. In the face of various challenges at the macro level, and the supervision level, the new rules have recently been introduced. How will this affect the company? How does the company address various external challenges, such as the impacts of the new rules on loan facilitation business and geopolitical uncertainties on the company's listing standards? Does the company have any plans for Hong Kong IPO?

Okay, let me answer this question. Since this year, we have indeed seen some major changes in the external environment. But as a company, we have always adhered to the risk-driven, data-driven, and detailed operation strategy. So we can see that we have achieved a good result. Although there are a lot of external challenges, we have been well prepared. So Huan Li Chen has been full of confidence in the goals we have set for this year and the whole year. So as for the issue of housing regulations, We support the regulatory body to further regulate the industry and continue to regulate the development of the industry. We support this regulation. Although this new regulation has a short-term impact on the industry, I think it is because it has just come out. We think we still need further observation. But from a long-term perspective, this will promote the regulation of the entire industry, healthy and sustainable development. Such an environment is actually very beneficial to us, including some of us who are currently on a larger scale. For us, we are able to deal with some of the potential impact of this new rule. Therefore, we also welcome this new rule, and we are still full of confidence in our goal of continuing to achieve it throughout the year. I just talked about an impact of geopolitical policy on the company's listing status. This is the translation for Jay's remark.

Despite significant changes in the macroeconomic environment and industry landscape this year, the company has delivered outstanding results by adhering to its strategy, focusing on risk management, data analytics, and refined operations. Although external challenges persist, the company is well prepared to navigate through them, and management remains competent in achieving its 2025 performance targets. Regarding the new rules on loan facilitation-based business, we welcome and support regulators' efforts in standardizing the industry. While the full impact of these rules remains to be seen in the short term, they are expected to foster a more compliant, healthy, and sustainable environment for the sector in the long run, a trend that particularly benefits large and compliant platforms like LeShi. For us, we have the capabilities and resilience to address the potential impacts of the new rules. Therefore, we are confident in achieving our full-year profit target. Regarding the geopolitical uncertainty, the company has proactively taken measures to prepare, including exploring potential listings on different exchanges, including Hong Kong Stock Exchange, in order to protect the interests of all shareholders. Once any concrete plans or significant progress materialize, we will promptly disclose relevant information to the market in accordance with laws and regulations.

Thank you. Just one moment for our next question, please.

Our next question comes from Alex Yee from UBS. Your line is now open.

Thank you for giving me the opportunity to ask a question. I have two questions. First, I would like to ask if you can give us an introduction to the progress and future strategy of the company's various ecological businesses. Second, I would like to ask about the progress and future strategy of the company's various ecological businesses. So my questions include, first one is, what are the progress and development plan for your ecosystem business? And second is, can you give us more color in terms of where we are in terms of our equity improvement trend, and how to understand the strength of your current risk management capabilities, and what's your plan for the next stage? Thank you.

Okay, let me answer the first question.

Actually, we all know that in Lexin, our business is relatively diverse and has its own unique ecological advantages. So, as I mentioned in my speech before, in terms of personal sales, we are constantly improving our entire precision operation capability. Customer capabilities, including customer efficiency, are constantly improving. So, in the future, in terms of sales, we will continue to to increase the ability of our entire branch to strengthen the entire branch of our entire client and to provide different products to different users to enrich our entire product array to strengthen our entire competitiveness At the same time, we will also start to develop some new growth channels Especially since this year, we have continued to strengthen some of the major partners, some of the KA partners, some of the potential of cooperation. So we see that this whole potential has been growing very well since this year. Through this kind of large-scale platform cooperation, we have further expanded the entire customer channel of the entire company, which can help us to continue a steady growth. The second thing is that I would like to talk about the retail business of our entire branch. Since last year, we have rebuilt the risk management system of our split sales, and upgraded some of our supply chains. It helps us to meet the needs of the split consumption of users in different levels. In the future, we will fully play out the whole sales scene. It helps the entire platform to activate customers and acquire some unique functions on the customer. to improve our ability to deal with environmental change in the future, and to continuously improve the company's overall management. So, in the business of the general meeting, we are also continuously optimizing some of our entire models, because it is a very unique business model of online and offline. Under the risk management model that we are differentiating, we are exploring how to continue to increase In the lower-level market, in the lower-level area, in the face of these small and small businesses in the city, the penetration rate of the whole customer group of individual business owners to strengthen our competitiveness. I think this is in the whole of a universal offline universalized whole business aspect, in fact, we also see this business also performed very, very well. It is a channel of our own customers, and its entire profit and loss ability is actually quite good in all aspects. Let's talk about our entire overseas business. We still think that we are now further optimizing our business model to lay down some good foundations for us. Currently, the entire overseas business is also overall profitable, so we also maintain to maintain a more cautious attitude towards investment.

Luching has always had very diverse business requirements in not only having online business but also offline, and we have unique competitive edge in our own ecosystem business. More specifically, as I mentioned in my remarks, for our online consumer finance business, We continue to improve the risk management capabilities on operational requirements and have witnessed a substantial enhancement in the capability and efficiency of customer acquisition. Going forward, we'll focus on providing tailored product offers to match customers with varying risk profiles, enriching our product portfolio to enhance customer offer competitiveness, and expanding customer acquisition channels. Meanwhile, we will further explore collaboration with huge traffic platforms, which have already exhibited good momentum this year, and expanded our business model to achieve sustainable volume growth. For our installment e-commerce business, we have revamped our risk management system, upgraded merchandise supply chain, and expanded the business boundary. By tailoring installment services to users based on their risk profiles, we better address diverse customer demand. We will fully leverage our e-commerce business to better engage existing customers and attract new ones, making it a key level for us to adapt to industry changes and enhance the company's operational resilience. For our offline inclusive finance business, which is quite a unique feature of our business deployment, we have strengthened our in-house channel development and optimized the risk management model to ensure the differentiated competitiveness of products and also secure sequential increase of profits. Going forward, we will continue to increase the penetration of micro-business owners in lower-tier cities, enhance localized business development, and increase operational efficiency. For our overseas business, we better optimize the business model and capabilities at various fronts. By far, our overseas business has achieved profit overall. Going forward, for overseas business, we will adopt a prudent approach in terms of investment and expansion.

Thank you. as well as the risk management model for different risk assets, as well as automated wind control, warning, prediction, monitoring, as well as corresponding smart risk management tools have been fully upgraded. These above developments and upgrades help us in risk management and risk response. The ability of the cycle to fluctuate has been significantly improved. After the construction of the past year, we have completely equipped with the industry mainstream mature quantified risk management system. The replacement and upgrade of this system has also helped us in the past year, whether it is the risk of full asset or the risk of cash flow, continuous decline and improvement for many years. In the face of the future, the external environment and industry uncertainty of the entire consumer credit system is still relatively large, and we will face greater challenges and pressure in terms of risk management. In the future, we will insist on continuing the risk driving strategy, constantly improving and optimizing our entire risk management capability and improving our risk management system, Over the past year, we have comprehensively upgraded our risk management system across multiple fronts.

including risk identification, risk strategy, differentiated risk pricing, risk-bearing models, risk monitoring and early warning, and risk management tool, et cetera. This has led to a significant improvement in our risk management strength and our ability to handle risk volatility. Thanks to our efforts and upgrades, In the past year, we have established a mature, robust, quantitative-driven risk management system. As a result, risk levels of both new and overall assets have exhibited a sustained decline over the past year. In light of the persistently challenging external environment and ongoing industry uncertainties, we remain committed to our risk-centric strategy and prudent operational approach. We'll further strengthen our risk management capabilities while actively exploring the application of large models to enhance the accuracy and efficiency of our risk management system. This will ensure asset rates maintain the current downward trajectory.

Thank you. Just a moment for our next question, please.

Our next question comes from Yada Li from CICC.

Your line is now open. First, congrats to the record high results, and thanks for taking my questions. My first question is, in this quarter, I've noticed that the revenue structure, experience, and material changes, and I was wondering what are the main reasons to drive this change? And second, what is the company's plan in shareholders' returns going forward? Thank you so much.

Okay. I will take the first question and ask Jay to talk about the second. For the first question, First of all, as I mentioned in my previous script, it is important to bear in mind that despite the different factors contributing to the quote-unquote revenue variance analysis, we should always take a holistic view to look at the total revenue and the credit costs together to get the big picture. The big picture is that from the unique economics perspective, our revenue take rate increased 6.22% to 6.69% quarter-by-quarter. And the net take rate after offsetting the operational cost increased from 1.31% to 1.58% quarter-by-quarter. So in terms of the specific revenue variance analysis, basically the quarter-by-quarter variance in total revenue was primarily due to lower credit facilitation service income driven by the reduced pricing higher early repayments, and a shift in GMV towards the capitalized model. While the tech empowerment service line income saw some increase driven by the capitalized GMV volume migration, here the net-based accounting recognition is used, where the revenue is net of related credit costs instead of recognizing revenue and credit costs in two separate lines. So related to this, the total credit cost declined at the same time, partially due to the same reason. Additionally, despite the sequential GMB growth of 16.2% quarter-by-quarter, the installment e-commerce platform revenue decreased similarly as a result of the revenue recognition difference due to the volume mix shift between the third-party sellers and the company direct sourcing. For the third-party sellers, only the platform service commission is recognized as revenue, rather than the entire transaction amount under the direct sourcing model. The sales volume from the third-party seller account for 56% of the total e-commerce GMV in the first quarter, up from the 36% in the last quarter. So, in conclusion, The revenue structural variance really reflected our ongoing risk-centric business transformation and our operational refinement. While the accounting treatment across different business models may cause some top-line variances, however, our profit and profit margin continue to improve, really firmly tracking our plan.

Okay. The company has always paid great attention to the return of shareholders. We strive to return the value to shareholders in various ways. From November last year to now, within half a year, the company has once again increased our share of cash. This shows the entire importance of the company's return to shareholders. At the same time, it also proves that the company is stable and reliable in terms of profit and loss. It reflects Guilin Cheng's confidence in the stable and sustainable growth of the future. In the future, the company will continue to create value for shareholders. The company has always attached great importance on shareholders' return and is committed to delivering value to shareholders in various needs.

Since November 2024, the company has increased its cash dividend payout ratio twice within six months, demonstrating its emphasis on shareholders' returns. This not only testifies the company's stable and reliable profitability, but also reflects the management's confidence in achieving stable and sustainable growth in the future. The company will continue to create value for shareholders. We understand investors' expectations regarding shareholders' returns and will work to align our dividend policy with shareholders' expectations by considering the company's resources, its business development and capital market conditions, while striving to enhance returns appropriately.

Thank you for all the questions. I see no further questions at this time. I will now hand the conference back to Will for closing remarks.

Thank you, operator. This conference is now concluded.

Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.