Yiren Digital Ltd.

Thank you for standing by and welcome to the year-end digital third quarter 2023 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 keys followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Lydia Yu, Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to our third quarter 2023 earnings conference call. Today's call features prepared remarks by the founder, chairman, and CEO of Credit East, and our CEO, Mr. Ning Chang, and our CFO, Ms. Nan Mei. Our SVP, Ms. Mei Zhao, will join the presenters in a Q&A session. Before beginning, we would like to remind you that discussions during this call contain forelooking statements. made under the safe harbor provision of U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company results may be materially different from the views expressed today. Further information regarding future risks and uncertainties or factors is included in our filings of the U.S. SEC. We do not undertake any obligation to update any forward-looking statements as required under the relevant laws. During this 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 replacement for the financial information prepared and presented in accordance with U.S. GAAP. For information about those non-GAAP measures and regulations to GAAP measures, please refer to our earnings press release. I will now pass it on to Ning, our CEO, for opening remarks.

Thank you, Lydia. Hi, everyone. Thank you all for joining our earnings conference call today. As China transitions into the post-COVID era, recent macroeconomic data shows economic recovery gaining traction, with China reaching 4.9% year-over-year GDP growth in the third quarter, beating market expectations but still a decline on a year-over-year basis from the previous quarter. In the face of overarching challenges on the macroeconomic front, we have consistently directed our investments toward research and development, aiming to elevate customer experience and optimize operational efficiency. As a result, over the past few quarters, we have enhanced the quality of our earnings Consistent improvement in our bottom line quarter over quarter. Strategic approach positions us to capitalize on growth opportunities once the economy rebounds. We reviewed our new corporate positioning as an AI and technology-driven financial and lifestyle services platform that is anchored by three key pillars. financial services, insurance, and consumption and lifestyle services. This quarter, we have started utilizing AI-assisted marketing tools to increase our advertising targeting accuracy and achieve greater social media visibility. We are also in progress of upgrading our chatbots to assist in early stages of the loan collection process. Let's get into this quarter's business update. First, on financial services. In the third quarter of 2023, total loan volume was RMB 9.8 billion, representing a 56% increase year over year. The total number of borrowers in the quarter increased 63%. from prior year, 1.2 million. View on our Yixianghua app continued to increase for the sixth consecutive quarter by 23% from prior quarter to 2.9 million. And that the number of every transaction per user maintained stable at three times, indicating high user stickiness and the activeness In terms of user distribution for Yixianghua, approximately 30% are first-time borrowers, while the remaining 70% are repeat borrowers. Borrower acquisition. Continue to explore new acquisition channels as well as optimize our acquisition methods to attract high-quality new customers. During this quarter, experimented with utilizing our WeChat. Additionally, we initiated collaboration with selected media partners to fine-tune our acquisition model and enhance the accuracy of user targeting. Combined with utilizing AI-assisted marketing tools These new initiatives resulted in loans facilitated to new borrowers increasing by 49% this quarter from prior quarter. For international expansion efforts, we have experienced significant growth in the Philippines market, with third quarter results showing a remarkable increase of 172% compared to the previous quarter. We have also achieved the notable improvement in risk management as we continue to join and fine tune our risk models tailored for the local market to continue to pursue growth in international markets and are excited for this emerging as a substantial driver for future growth. To continue to diversify our funding sources, we noted approximately 5% decrease in institutional funding costs this quarter as compared to last quarter. Asset quality remains stable with 15 to 89 days delinquency rate at 3% and M1 collections rate improved by 0.5 percentage point this quarter. Consumption and lifestyle services have been continuing rapid growth over the past few quarters, with total GMB generated this quarter increasing 42% from prior quarter. RMB 563 million. The number of active users this quarter also increased 22% from prior quarter to 2.96 million. The growth in our consumption and lifestyle services segment has also created synergies with our financial services segment, with active users further stimulating an increase in loan demand, resulting in a mutually reinforced loop in our ecosystem. Lastly, on our insurance brokerage business, the world's premiums reached RMB 1.4 billion, quarter of 2023, up 43% year-over-year and 7% quarter-over-quarter, which is significantly ahead of industry average. Second quarter was the peak for first-year premiums due to the timing of the new pricing regulation capping future product returns at 3%. Breaking down, this quarter, 62% of total premiums were attributed to life insurance premiums, while property insurance premiums accounted for the remaining 38%. Highlighted on prior course costs, our strategic emphasis on driving growth centers around three key areas, product innovation, agent development, and digitization. A very important KPI for us is agent quality and productivity. I'm happy to note that with the establishment of our elite agent team, we have seen a notable 39% quarter-over-quarter increase in life insurance policy premiums, surpassing RMB $3 million per policy, as well as a 62% quarter-over-quarter increase in high margin property insurance policies. On property insurance, we continue to see continued growth in overseas construction policies with total premiums for this product segment increasing 19% quarter over quarter. On product innovation, I'm very excited to announce that we have a lineup of novel and tailored life insurance policies scheduled for release in the fourth quarter. including a product significantly designed for inheritance. I'll share more details and initial results during our next quarter's call. I will now pass it to Na, who will go through the financials for this quarter.

Okay, thank you, Ying, and hello, everyone. On this call, I will only focus on our key financial highlights. please refer to our earnings release and our desk for further details. In the third quarter of 2023, our total revenue, which will be 1.3 billion, representing 56% increase year over year. On financial service, we saw our health growth with total loan facilities quarter, which will be 9.8 billion, representing 56% growth over private year. On insurance, Our gross rent premise reached RMB 1.4 billion, representing 43% increase year-over-year and 7% increase from private culture. Revenue from our short-spoke segment service reached RMB 255 million for this quarter, increased 14% year-over-year, but decreased to 30% from private culture. The culture-over-culture virus was mainly due to the renewal primaries, which contributed 36% of the total primaries in the third quarter, compared to just 17% in the second quarter. Renewal primaries overall have a low commission rate, as compared to the first-year primaries. And the shift was mainly a result of price change, which ensures product returns being now capped at 3%. so we can sell a flat edge of new first-year policy for legacy products in the second quarter, especially in June. On consumption and lifestyle service, the total GMW for the quarter reached RMB453 million, increased 42% from private quarters. On the expense side, sales and marketing expense increased 43% year-over-year to RMB196 million. mainly due to our increased marketing efforts as business volume extends. Research and development expense increased 17% year-over-year to R&D 39 million, as with data awakening AI and tech innovation across our company. Online and service costs increased 10% year-over-year to R&D 245 million, mainly dry band and increased online and service costs relating to our insurance broker segment. Stand A decreased 30% year-over-year to RMB 54 billion as we continue to rise operating efficiency. Allowance for control assets and receivables was RMB 84 million for this quarter, with living stable and about 0.9% of loan facility. On to our bottom line, we continue to deliver a strong profit of RMB 554 million this quarter, increased 105% from prior year. We generated about RMB 645 million net cash from operation in this quarter, an increase of 88% from prior year. On the balance sheet side, our balance sheet remains strong with total cash and cash equipment of RMB 5.4 billion by the end of this quarter. This quarter, we declined $2 million to pay back our shares in the public market As of this third quarter end, the company has accumulated 5.5 US dollars for our share repurchase program. We maintain confidence in the fundamental aspect of our company's business and growth prospects. Based on our assessment of current business and marketing conditions, we expect our 2023 full-year revenue to stand between the NB 4.3 billion to the NB 4.9 billion. with 9.3 margin assigned to the main table. This requires our current and preliminary review, which is subject to change and uncertainty. With that, we come to our closing remarks. Operator, now we can open for questions. Thank you.

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

Good evening. Thanks for taking the call. Okay, I missed most of the conference call, but I read the report. Another great quarter. I mean, it's... really unprecedented, the sort of financial returns you show on a quarterly basis. Your stock has gone up pretty sharply the last two days in advance of this call. But what are your plans to try and get a higher level of stock price? Because based on your run rate, you're trading at less than one times earnings, which is you know, in my 41 year career, pretty much unprecedented. In addition, you have probably at least three times the cash on the balance sheet that the value of your company is. And that's also unprecedented. Uh, your company also used to be worth $50 a share like a few years ago. Uh, so, uh, down at the two or $3 range is, is, uh, unusual. But, you know, you're a Chinese stock from the PRC and people are distrustful. So with that being said, what plans do you have to broaden out investor awareness of your company? You know, because this stock should be $10 minimum, not two. Can you help me with that?

Well, thank you. I'll provide my perspectives, and then Na and other colleagues can do more. So first of all, thank you for your kind remarks, recognition. And I think one is that As Na mentioned, we keep buying back our shares, and now we see the volume has gone up, and that enables us to buy more shares. So we will continue to do that as much as we can. And so that's one. I hope there is a... you know, reinforcing a positive, uh, loop, you know, uh, stock price goes up, uh, more room for buyback, uh, uh, price, uh, going up further, uh, uh, more room for buyback, so on. So, uh, this is, uh, uh, one. Uh, secondly, uh, quite interestingly, uh, uh, I've, uh, yeah, had, uh, some, uh, interactions with, uh, investors and other interested parties on the same issue. And so there are some interesting suggestions which I found to be quite intriguing and probably they make good sense. I'd love to get your thoughts as well, which is like when our market cap was big, Yeah, much bigger. We attracted lots of institutional interest. But now, yeah, today the interest is more at the retail level. So if we keep doing the institutional communication mainly or solely, that is not good enough. Yeah, we miss a big chunk of our investor interest. So we are thinking, yeah, quite proactively, yeah, to do more like retail side communications, yeah, and there's good work to be done on that front while continuing to do good better, I'd say, communication with institutional partners investors and yeah other interested parties as well with yeah more visibility like we have we are enjoying like business is getting yeah better and better consistency is very clear and prospects are great so there will be more and more institutional Yeah, coming back. While the retail side, yeah, is something we will spend a lot of time on. Yeah, so that's another point I'd like to make. Yeah, and fundamentally, we will continue to do great business. Yeah, my firm belief is that if we continue to deliver, yeah, things will really cut back for us.

All right. That all sounds good. I know your share buyback is restricted by the volume. How many shares have you bought back this year? You were going to buy $20 million worth, but that's pretty tough to do with the volume you're showing. Can you tell me how much you've bought back so far?

Now I mentioned this number, so please go to more details.

Yeah, as I mentioned in my script, by the third quarter, the end will have accumulated up to $5.5 million to perform our payback. Actually, by the end of this month, the latest amount is amount to $7 million to perform our payback. and will continue to promote the shelf-back with the VOD or push limitation at $20 million.

Gotcha. I'm sorry. As I said, I missed the first portion of the conference call. It took me a while to get on. All right, $7 million, which is fine. Have you thought about just tendering you know, like at $4 for like 25% of the shares. I mean, and this is part of a second question. Why don't you just take it private, okay? You know, you have the money on the balance sheet. You make more money than the whole market capitalization of the company. I mean, you're trading at less than one times earnings, which is, you know, crazy. Really, it's very unusual. Why do you want to be a public company? Just take it private and pay a premium to people, you know, five bucks, okay, and people will be happy to get out. And you could spend less than the cash on your balance sheet. So has that – or have you ever been approached by a third party who would like to – participate in a buyout?

Yeah, we certainly see the math, but as I explained in previous calls, yeah, so it's very clear that our strategy to go global, to become a global fintech leader And so maintaining this listed company position gives us a lot of upside to do like going global. And also we believe the market will recognize good performance, consistent good performance. Yes.

So are you saying that having a U.S. listed stock has certain prestige attached to it, so you would rather be a publicly traded company because you think in the long run it'll benefit you?

Yeah. For example, we can do acquisitions globally. we can reward our employees and the partners globally with stock and so on. Yeah, so it's very strategic. We have this vehicle, this platform.

All right, but it wouldn't make sense to pay people in stock when your stock is still undervalued. You might as well pay cash because you have plenty of cash. So if you're going to reward people with cash... Okay. Okay. Very well. All right. Listen, you're not the only firm that's the only company that's in your space. I like your company because you've broadened out your business model to include insurance and things like that. But other companies that are strictly lending platforms like QFIN and or FIMV, you know, Finvolution, which reported last night. Another company reports tomorrow, which is X Financial. I'm familiar with all these companies because I worked at Morgan Stanley and we underwrote you guys. We were part of the initial public offering back in 2016 and 2015. So I'm very familiar with your companies. Um, and I've just been frustrated that I haven't gotten, uh, uh, I haven't made as much money as I'd like to because I've had to be patient. Um, but, uh, I'll just leave it there. I mean, there's nothing else to say. Uh, your stock should be worth a lot more as you're buying as many shares as the volume will allow. That's all I can ask. Um, When is the window open for you to buy more shares? I mean, the volume spiked the last couple days. When can you buy more shares after this earnings call?

Yeah, once the window opens up. Well, yeah.

You'll go all in. When is that window open up, sir?

Okay, I'll answer your question.

Yes, exact date.

Yeah, yeah, by today. Yeah, after our conference call and the release of earning the third quarter of a new statement, the window is open.

All right. Okay, last question. You know, some of your competitors do pay a dividend. QIHO, which is Q-F-I-N as a symbol, XYF, and FINV pay dividends, which... not only returns some of your huge cash position to shareholders, but it makes shareholders more comfortable dealing with a company from the PRC that pays dividends. Because if you pay dividends, then the money you have is actually there. So have you considered that?

We have thought about that. As a matter of fact, we did it like a while ago for a while. And so there are different schools of thought. And so people say that, you know, what you just said is one school. And some people say that, you know, which I tend to agree more with. is that once you pay dividends, you become a category of dividend-paying companies as opposed to high-growth companies. And if you are a high-growth company, which we are, so we have high-quality growth opportunities for our cash, and so we should belong to that category. So I firmly believe we are, as we show the high growth rate, high quality growth, AI-driven growth. So I understand the dividend helps in terms of returning money to investors. So we do buyback aggressively, and that's another way of returning, an alternative way of returning, generating value for investors while sticking to being a high-growth company, putting cash in better use. That's our current thinking.

I mean, the buybacks are good, except for the stock price really hasn't moved. Let me just give you some advice. The four or five companies that came public five or six years ago that were, you know, peer-to-peer lenders like you used to be, but are in the same business space, really, that you all are, that pay dividends. Okay. One is Finvolution. I'm sure you're familiar with them. they traded four and a half times earnings and they pay a dividend, all right, of 4%. And then if you look at QFIN, which is QIFU, all right, you know, QIFU, I'm sorry, you know, Morgan Stanley follows them from a research point of view and it's got a $3 billion market cap, but they pay a dividend also. And that trades at five times earnings. So just paying a dividend is, could increase your stock market price to earnings multiple three or four or five times. So your stock could go up literally four or five times if you just pay a small dividend. So you might want to think about that because if you pay a dividend, certain investors will invest because they like the dividend, but it also gives them comfort that all this cash that you have on your balance sheet is actually there because, uh, you can't pay dividends unless you have money. All right. So if you pay it, it kind of proves to them that, um, uh, that you're very, very, very good, uh, financial position from a balance sheet point of view is, uh, is valid. So, uh, your stock could go up two or three times just by paying a dividend. So that's my advice.

Thank you. Noted.

We'll, yeah, study further.

Very well. Thank you for your time.

Thank you. A reminder to all the participants that you may press star and one to ask a question. A reminder to all the participants that you may press star and one to ask a question. Last time a reminder to all the participants that you may press star and one to ask a question. This concludes our conference for today. Thank you for your participation. You may now disconnect.