Yiren Digital Ltd.

Thank you for standing by and welcome to the year-end digital third quarter 2022 earnings conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Keao He, IR officer. Please go ahead.

Thank you, Rita. Good morning and good evening, everyone. Today's call features the presentation by the founder, chairman, and CEO of Credit East, our CEO, Mr. Ming Tang, and our CFO, Ms. Na Mei, our SVP, Ms. Mei Zhao, Raymond Fung, COO of UNCLAB, will join the presenters in the Q&A session. Before beginning, we would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor Provision for U.S. Private Security Legislation Reform Act of 1995. Such statements are accepted risks, uncertainties, and factors that can cause actual results to differ materially from those contained in any such statement. Further information regarding presented risks and certainty of factors is included in our filings with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements as required under relevant law. During the call, we will be referring to certain non-GAAP financial measures and supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation. or as a substitute for the financial information prepared and presented in accordance with the U.S. GAAP. For information on non-GAAP measures and recent consideration to GAAP measures, please refer to our ending press release. I will now pass it on to Min for opening remarks.

Hi, everyone. Thank you for joining our conference call today. We are very pleased to deliver a resilient quarter with solid business recovery and continued improvement in profitability post our product restructuring and pandemic resurgence in the first half of this year. As the macro environment gradually rebounds and our revenue structure continues to evolve and upgrade, we have full confidence to embrace an accelerated growth path in the quarters to come. First, an update on our holistic wealth management business. Our insurance brokerage business continues its strong momentum this quarter, becoming an essential revenue pillar. In the third quarter of 2022, total premiums reached RMB $1 billion. representing a 36% increase year over year, surpassing the industry average growth rate by over six times. Revenue generated from He Xiang Insurance brokerage services reached RMB 189 million, accounting for more than 22% of total revenue. and we expect to see an accelerated double-digit growth in the fourth quarter. The rapid expansion of our insurance brokerage business is fueled by He Xiang's outstanding capabilities in product customization and innovation. Distinguished from other insurance brokers, He Xiang excels in analyzing and exploring different clients' specific needs in their life, and working scenarios. Therefore, our products enjoy a strong advantage of exclusiveness in the market. For example, one of our whole life insurance products, tailor-made for high net worth clients, called Yi Mai Xiang Chuan, closed nearly RMB 60 million in premiums this quarter alone. Another example, our customized group insurance products targeting kids and teens with vision care services will hit the market soon, which is expected to contribute sizable premium in the coming quarters. Moreover, our property insurance products also saw continued growth for the past 22 consecutive months and the demand remains strong as we expand into more fast-developing areas, such as litigation, preservation, liability insurance business. Another highlight I would like to point out is that second-year renewal rate for our long-term insurance products reached 96.6% as of the end of third quarter this year, much higher than the industry average of 85%. which has further proven the high quality of our services. Regarding the new regulation on online insurance sales, that's been a hot topic in the industry this year. The actual impact on our business has been minimal due to the complexity and richness of our product metrics and our relatively low reliance on online channels. In the third quarter this year, the total number of insurance products offered exceeded 750, up from around 650 in the prior quarter. Looking ahead, the momentum remains strong for both our life and property insurance segments. Now, moving on to a bigger picture of our holistic wealth business. In the third quarter of 2022, total client assets reached RMB 22.8 billion, an increase of 31% year-over-year, particularly on Yiren Select's platform, which is the upgraded version of Yiren Wealth and our super app strategy. Average client assets held by each client through our institutional partners reached more than RMB 350,000, representing a year-over-year growth of 36%. With the ongoing penetration of our Life Plus Finance initiatives and the balanced asset allocation investment educational concept, in the third quarter, the number of clients with client assets over RMB 1 million increased by 57% from prior year, a vivid reflection of the enhanced recognition for our improved serving capabilities. Before we move on to an update on credit, I want to mention that we have officially closed our online brokerage arm, China Glory, in the fourth quarter last year to be compliant with new regulations. Going forward, we will focus our efforts on our core wealth business lines and in creating a powerful flywheel effect that will help our loyal and growing member base with additional financial management solutions that match their needs for investment, savings, and insurance protections while also increasing their lifetime value to us. Looking into the year of 2023, we expect to realize increasing synergies between each business line as He Xiang Insurance Forkridge continues to customize products and services that match the needs of our customers within the Yiren digital ecosystem. Our customer base is also expected to continue to expand with higher acquisition efficiencies as our consumption-driven businesses start to ramp up in scale. and drive up overall customer engagement. Now, I will pass it to Mei, who will go through the highlights of our credit tax business for the third quarter.

Thanks, Ning. And hello, everyone. Before I provide an update on our credit tax business, I would like to reiterate our strategic product transition and we would like to see a full recovery of the growth pace post-op restructuring. With the aim of to improve our overall profitability and reduce the potential operational risk amid the pandemic resurgence, we started to proactively optimize our loan portfolio structure back to the second half of the last year and scaled back our online secure loans business that burned higher operating costs and higher volatility during the pandemic. We officially terminated this product in the first quarter of this year. Now that our new loan portfolio enjoys a higher operating efficiency and large lower borrowing costs. We believe the transition allows us to better sustain and scale with a healthy unit economic and higher flexibilities and reasons to respond to any further market involvement. In the third quarter of this year, the total loan volume reached RMB 6.3 billion, accounting for 66% of the total loan facilitated in the first half of this year and close to pre-transitioning level. Given the current strong demand for our loan facilitation services, especially for our more revolving loans, we project a further two-digit growth quarter over quarter in total loan volume in the fourth quarter this year. Another notable highlight is that our MAU increased to 1.7 million at the end of the third quarter this year, representing a 24% increase compared to the end of the last quarter and a 54% growth compared to the end of the third quarter last year, due to our improved services and enhanced integration with our borrowers. Meanwhile, we see an increasing number of users coming back for second loans as we continue to offer various value-add services and membership benefits, such as discounts, tailored insurance products, and award credits In the third quarter of 2022, the repeated borrowers account for 81% of the total borrowers for small revolving loan products, compared to 62% in the third quarter last year, translating into a decline in acquisition costs per user. Moreover, as our eCommons platform continues to enjoy increasing popularity among our users and bringing in growing traffic. The average acquisition cost is expected to further decrease in the future. Just to echo what Ming mentioned earlier, our consumption-driven services from both our e-commerce platform and Yiren's has to help build up a more dynamic and integrated ecosystem with including synergies between different business lines. On the funding side, as we continue to increase and diversify our funding partners, we expect to see a continual decline in the funding costs in the coming quarters. Last, But now this, the asset quality of the new loan shows a stabilizing and improving the trend. Our SPP 30-plus delinquency rate in the third quarter reached 0.49%. Due to the historical lows as a result of our continued efforts in customer segment automation, and risk of control tightening. With that, I will now pass it on to Na, who will go through the financial for the third quarter this year.

Okay, thank you, Mei. And hello, everyone. For this quarter's financial update, I will focus on key financial highlights only. Please refer to our earnings release at our desk for further detail. We delivered solid results this quarter with total revenue reaching the $841 million, accounting for 56% of total revenue in the first half of this year, with a celebrated recovery from the temporary impact of our product restructure and the pandemic lockdown. As you may have noticed, we recognized our revenue segmentation in the third quarter last year to high e-commerce revenue, as Australia's deployment in consumption driving service starts to set off and lies to a more domestic ecosystem with enhanced all-customer engagement, activity, and long-term value. Contribution from holistic wealth business reached RMB 294 million in the third quarter, and accounting for 35% of the total revenue, up 8% points compared with the same period last year. This is in line with Australia's proceedings as a personal financial management platform that discredits us from our leading peers. On the credit side, our total facilities this quarter will then be 6.3 million, relaxed stable digital growth quarter over quarter, and rebounding to the structure level of last year, driving by the rate of our small rewarding low. Revenue from credit tax service, which will then be 493 million this quarter, accounting for nearly 60% of that of the first half of this year. Our average borrowing cost has slid into 24.3% for all new loan facility October. With Friday, our ongoing commitment to financial inclusion and align with regular directive. On the intensive side, total operating expense was generally 505 million this quarter, decreased by 38% compared with the third quarter last year. Sales and marketing expense decreased by 66% to $136 million from the same period last year, leading to drawing back cost savings as well as optimizing our offline business, which May has touched on his great learning. Original and service expense increased 20% year-on-year to $224 million, widely due to the expansion of insurers' brokerage business as well as the increased spend on risk assessment service posts, hiding our risk management policy earlier this year. Allowance for counter-assets to receivables and others decreased by 58 year-over-year to RMB 35 billion due to higher provision book for our long-term secure loan business last year. It delivered a strong profit of RMB 270 million this quarter, Refracting a net income margin of 32.2%, up 62.2% twice year-over-year as we enjoy better unit economy post-pandemic product restructure and continue to enhance our cost efficiency. Turning to our balance sheet, we maintain a substantial balance sheet which will be 5.5 million in total shareholders' equality of September 13, 2022. increased by 15% compared to as of December 31st last year. Meanwhile, we remain at a strong cash position with usable cash, which will be 4.7 billion. We serve something buffer for our execution, our share repurchase plan, which was announced early this year, as well as spread enough for any business or investment opportunity going forward. Now, based on our assignment, our business, and the marketing conditions, This time, the revenue in the first quarter this year is to be between RMB 0.9 billion to RMB 1.1 billion. And with that, the profit margin is trying to remain stable. With that, we conclude our close remarks. Operators, we are now open for questions. Thank you.

Thank you. If you wish to ask a question... please press star then 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you are on a speakerphone, please pick up the handset to ask your question. The first question comes from Boyd Hines with Equinox Capital. Please go ahead.

Hi, can you tell us how many, what was the size of the loan facilitation in Q2 of fiscal year 22? In your previous press release, you just gave a first half number. I'm just kind of curious to see what was the sequential rate of growth in your online lending channel.

Can May and Na answer this question, please? Second quarter long volume.

Okay, this is Na. I will ask you a question. In our third quarter, our loan volume is total about 4.6 million. And compared to the third quarter, the loan volume in our third quarter is increased about 20 to 30%.

I'm sorry, that was Q2, it's increased 20 to 30%? Yeah. Okay. And can you talk a little bit about the strength of the demand of those online loans? How much more growth can you expect to see in fiscal year 23?

we have positive outlook, but Ma, Na, do you have detailed numbers or do we disclose that?

Yeah, based on our current outlook for our 2023 forecast, we think that our loan will keep stable and go back to the trend. And based on our current forecast, we think that our loan will increased about 20 to 30 percent. We hope that there is a better performance.

Your balance sheet is very strong. You have a lot of cash. What kind of interest income are you generating from that cash? at this time? Because it seems like there's not, I don't see much that's been reported on the income statement.

Yeah, I think most of our cash is mostly from our revenue from our customers from the credit segment and the holistic segment. And actually, there's a little interest income, as you mentioned, in your cash deposits. Yeah, it's most from our customer revenue.

Right, and I think you've done a great job of managing your expenses in a declining revenue environment. I'm just curious about your capital allocation. Given that you're not generating much interest income from the cash, is it possible that you could you do have a 20 million U.S. buyback program in place. And it doesn't appear to me that you have utilized any of that yet. It would appear to me that you should be much more aggressive about repurchasing your own shares going forward. Can you just comment a little bit about the status of your buyback program Is it ready to be put into effect immediately?

We agree with you. Yeah, we totally agree with you. Yeah, as you mentioned, we have announced a new sales repurchase supply in September. And now I think after we earlier released what's called a financial statement, then we'll restart our repurchase supply. And I think our strong cash position will give us a big buffer to secure our sales and purchasing future. Yeah, of course, we will also keep identifying other new small business opportunities to use our cash position and also enhance our capital income. Yeah, as you mentioned, we will secure our purchase plan and identify other new small opportunities to use our cash position. Thank you, thank you.

Just to be clear, looking at your 20F, you did have a previous $20 million U.S. buyback program authorized and in place, and yet you didn't utilize that during the year, and you canceled that and then put a new $20 million U.S. to replace it. Why was

why did you do it that way why didn't you just you know utilize the existing uh repurchase program that was had already been authorized yeah yeah as you mentioned we renew our new uh reporters flying in september that's because that is the old plan we announced uh many years ago and during the the last several years we have uh sq the person's plan and there's uh a little less so as because we are shareholders we hope that we need to renew a new purchase line amount to 20 millions and so that we can renew one because the last one is a little rest yes it's many years ago we announced it right i think what people are looking for is to see do you actually follow through with the repurchase yeah so i would urge you to to do that um

And, you know, it's important to show investors around the world that you also feel that the shares are undervalued and that, you know, you're going to be in there supporting the ADF, which seem to be extremely undervalued, even in a sector that is generally undervalued. And I guess this question is also for the larger shareholders who are on the call. Have you considered taking this company private given the dramatic difference in what this company should be valued at and what it is trading at right now?

We have no such intention at this moment. Okay. Because going mobile is our strategy. Yeah. And this offshore listing position helps a lot with our global strategy.

I see. Would you consider going in and purchasing more shares at this level yourself, individually?

You're talking about me?

Yes, you.

The program is there and it's not finished. As you pointed out, we will, yeah, push forward with the program. Right.

I understand. But, you know, a lot of what can also be done in addition to that is if large insiders at the company are going in and purchasing stock themselves for their own accounts. And, again, it's just another way of thinking.

Well, the stock. The floating part is not that big. So while we totally agree that the share buyback is very helpful, we are also mindful that the float is not that big. If we buy back all the shares, then it's the distance.

Okay, I'll allow others to ask questions, thank you.

Once again, if you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. There are no further questions at this time. If you have any further questions, you can feel free to contact the company's IR team. That does also conclude our conference for today. Thank you for participating. You may now disconnect.