Qfin Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Kifu Technology first quarter 2025 earnings conference call. All participants are in a listen-only mode. If you wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Gee, Senior Director of Capital Markets. Please go ahead, Karen.

Thank you, Desi. Hello, everyone, and welcome to Qifu Technologies' first quarter 2025 earnings conference call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Wu Haisheng, our CEO, Mr. Alex Xu, our CFO, and Mr. Zheng Yan, our CIO. Before we start, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Also, please note that unless otherwise stated, All figures mentioned in this call are in RMB terms. Before we start, we would like to let you know that today's prepared remarks from our CEO will be delivered in English using an AI-generated voice. Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.

Hello, everyone. Thank you for joining us today. In the first quarter of 2025, China's economy showed early signs of a mild recovery under the guiding principles of stabilizing growth, optimizing structure, and managing risks. Meanwhile, the global economy is undergoing profound technological transformation and structural changes. In an increasingly complex and volatile environment, we upheld prudent operations, leveraged AI to reshape the credit value chain, and achieved high-quality growth delivering results that surpassed our expectations. By the end of the quarter, our AI-powered credit decision engine and asset distribution platform empowered a total of 163 financial institutions and served more than 58 million users with approved credit lines on a cumulative basis. Total loan facilitation and origination volume on our platform increased by 15.8% year-over-year. With operational efficiency continuing to improve, our take rate for the quarter reached 5.7%, up 2.2 percentage points year-over-year. Nungap net income increased by 59.9% year-over-year to RMB 1.93 billion, while Nungap EPA DS on a fully diluted basis rose by 78.5% to RMB 13.5. Despite macroeconomic headwinds, we have consistently improved upon our past results and outperformed our market commitments through ongoing involvement and enhancements to our business. At the start of this year, we began rolling out our AI plus credit strategy at scale aimed at building the industry's first AI agent platform to empower core credit processes. We plan to recruit an additional 100 algorithm engineers by the end of the year and accelerate our transformation into an AI native organization. We have also established our deep bank division, which is driving the research and development of our AI plus bank agent products to support the intelligent upgrade of financial institutions. In April, we introduced an internal AI agent platform, and by May, deployed five digital employees across key functions, such as data analytics, operations, compliance, risk management strategy, and financial reconciliation. Our AI agent, Chat BI, is now deeply integrated into our intelligent decision-making, and business analysis workflows. This agent provides real-time data insights and attribution analysis, empowering us to dynamically optimize our strategy and enhance decision efficiency. Risk management has always been a cornerstone of our business. This quarter, we allocated a small portion of our traffic to pilot an end-to-end risk management framework powered by large language models. By training on historical decision logs using DeepSeq, we achieved a notable improvement in AUC area under curve to 0.64, a metric that measures risk tiering ability. We also upgraded our data mining capabilities by incorporating video and other multimodal inputs, enabling richer and more diverse feature representations. On top of that, we developed a user profiling agent that performs consistency checks on user features with over 95% accuracy, supporting differentiate credit lines and pricing based on user profiles. In terms of risk strategy, we maintain the differentiated approach in user operations, driving moderate loan growth while preserving ample risk buffers. With loan volume increasing by 15.8% year over year, During the quarter, our C to M2 metric, which measures delinquency rates after 30-day collections, remained largely stable at 0.6%. In Q1, we made further upgrades to our intelligent asset distribution platform to improve the precision of fund asset matching. This helped us boost underwriting efficiency. and strike a better balance between risk and return of our loan portfolio. Benefiting from our robust asset quality, we maintained our negotiating leverage on the funding side, resulting in a consistent decline in funding costs. In Q1, we issued RMB 6.6 billion in ABS, a year-over-year increase of approximately 25%. With the proportion of ABS in our funding mix growing further, our overall funding costs decreased by an additional 30 basis points sequentially. We expect funding costs for the coming quarters to decrease slightly from Q1 levels. In terms of user acquisition, we have modestly increased our spending and are actively exploring a broader range of channels. In Q1, we added 1.54 million new credit line users, up 6% year over year, with new borrowers increasing approximately 41% year over year to 1.13 million. Our marketing-focused AI agent leverages multi-modal recognition technology to analyze user intent in real time, integrate campaign management across multiple channels, and enable real-time strategy adjustments. This has significantly improved our user profiling accuracy across channels with the conversion rate of new credit line users to new borrowers increasing by 33% from the same period last year. Our embedded finance business remains a key strategic focus as we continue to expand both the breadth and depth of our channel coverage. In Q1, we added seven new channels spanning from leading internet platforms and various small and mid-sized platforms to banks in multiple regions. We are also in the midst of onboarding two additional strategic platforms, signaling broader collaboration with leading internet traffic platforms and unlocking meaningful and incremental growth potential going forward. During the quarter, our new credit line users from the embedded finance channels grew 36% year over year, while loan volume surged by roughly 106%. The overall ROA of these channels improved by 20% on a sequential basis. Regarding our technology solutions business, we established partnerships with three additional mid to large-sized municipal banks in Q1, driving loan volume from this segment to grow by roughly 144% year-over-year. powered by our Focus Pro credit tech platform. Our proprietary solution for SME lending, which is built on a three-tiered credit assessment system, gained meaningful scale in loan facilitation volume and delivered better than expected risk performance in Q1. This success has created new opportunities for our market expansion and growth in 2025. We have already received a wide range of inquiries from multiple banks about our AI plus bank agent products and recently entered into strategic partnerships with several of them. As a key component of these partnerships, we will help banks deploy agents across a broad range of applications, including marketing and customer acquisition, risk management and loan approval, decision analytics, growth operations, compliance reviews, multimodal recognition, remote banking, and digital employees, facilitating their digital and intelligent transformation. In April, China's National Financial Regulatory Administration issued the notice on strengthening the management of the Internet Loan Facilitation business of commercial banks to enhance the quality and efficiency of financial services. The notice provides clearer guidance for internet-based lending practices, emphasizing that commercial banks should establish equal, mutually beneficial partnerships with platform operators and credit enhancement providers, sharing risk responsibilities and adopting a long-term perspective. We view these guidelines as strong regulatory recognition of the value the loan facilitation model provides. By setting clearer industry standards the notice is expected to improve the overall health and the sustainability of the sector. We will continue to engage in proactive and constructive discussions with regulators, regularly reviewing our practices and upholding prudence and compliance in our operations. The increasingly complex international landscape has added uncertainty to the pace of China's economic recovery. That said, We believe the economy will remain fundamentally resilient over the long run, supported by China's technological innovation, supply chain upgrades, and government measures to boost domestic demand. At the press conference held on May 7 this year, the State Council Information Office announced a package of financial policies aimed at stabilizing markets and managing expectations including guidance for financial institutions to increase support for key consumption verticals. More recently, we are seeing encouraging progress in US-China trade talks. Overall, the macroeconomic and policy landscape is showing signs of stabilization, which will provide a favorable environment for the steady development of the consumer credit industry. As we progress through 2025, we remain cautiously optimistic. In the near term, our focus will be on enhancing operational efficiency, optimizing capital allocation, and enhancing shareholder returns. Over the long term, we will continue executing our one core two wings strategy. We expect our core long facilitation business to sustain high quality growth while our technology solutions business will continue to empower financial institutions to accelerate their intelligent transformation through our AI plus strategy. Internationally, we will focus on near prime segments in markets with relatively stable regulatory environments, leveraging our leading FinTech capabilities to build a strong competitive edge. In Q1, We issued USD 690 million in convertible senior notes, further expanding our international funding channels and improving capital allocation efficiency. 100% of the proceeds from this issuance will be allocated to share buybacks. Adopting a cash-par settlement structure allows us to significantly reduce the potential dilution to existing shareholders. On the 25th of March pricing date, We concurrently completed a USD 227 million share repurchase resulting in an immediate 3.6% reduction in our share count. Combined with our USD 450 million share repurchase program that took effect on the 1st of January, we expect our total repurchases this year to be no less than USD 680 million. Based on the current share price, we estimate our total share count will decrease by approximately 11% when compared to the beginning of the year. We are confident in the future of our company and remain dedicated to delivering long-term value to our shareholders. Moving forward, we will continue to prioritize efficient capital allocation and the shareholder value creation through recurring share buybacks and dividends. With that, I will now turn the call over to Alex.