Yiren Digital Ltd.

Good day and welcome to the first quarter 2025 year-end digital conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kiao He. Please go ahead.

Thank you, operator. Good morning, good evening, everyone. This call features the presentation by the founder, chairman, and CEO of Credit East, our CEO, Mr. Ning Chang, and our CFO, Mr. Yu Ning Feng. Our incoming CFO, Mr. William Hui, will join us for the Q&A session after the prepared remarks. Before beginning, we would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provision of U.S. Private Securities Litigation 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. But the information regarding future risks, uncertainties, or factors is included in our filing for the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements as required under the relevant laws. 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 about those non-GAAP measures and recommendations to GAAP measures, please refer to our ending press release I will now pass it to Ning for opening remarks.

Thank you all for joining our earnings conference call today. We are pleased to report another solid and healthy quarter, reflecting the strength of our technology transformation strategy, which focuses on sustainable growth, operational efficiency, technology innovation, and international expansion. Our core business benefits from domestic economic stimulus policies that boost consumption and expand credit access, creating sector-wide opportunities. Through our strategic focus on attracting and serving high-quality borrowers, combined with ongoing integration of advanced technology across our platform, we are well positioned to capitalize on these favorable conditions and the confidence in maintaining our growth momentum through 2025. Before discussing our operations in detail, I would like to share our interpretation of the new rules on loan facilitation business issued by China's National Financial Regulatory Administration in early April this year. Under the new rules, commercial banks are required to adopt a formal white-list mechanism for fintech partnerships and comply with standardized financing cost structures. Under the new regulatory framework, we anticipate accelerated consolidation in China's online lending industry due to stricter compliance requirements. While smaller platforms may face pressure in maintaining partnerships with funding sources, major platforms like ours are gaining dominance through compliance advantages and technological strengths. Looking ahead, risk management capabilities, regulatory compliance, and differentiated product pricing capabilities will become critical competitive differentiators And those are precisely the areas where we are strategically building our operational edge. Now, let me go through our business highlights for this quarter. First, our financial services business. In the first quarter of 2025, loan volume facilitated reached RMB 15.2 billion. representing a slight decline of less than 1% quarter over quarter, but a strong 28% increase year over year, demonstrating resilience amid seasonal headwinds. We project the double-digit growth in loan volume for the second quarter of this year, attributable to three key growth drivers. The first one is our growing repeat borrowing rate, which increased significantly to 74% in the first quarter of 2025, compared to 65% in the fourth quarter of 2024. Having successfully upgraded our customer base with higher quality borrowers, we are now focusing on increasing repeat borrowing within this premium segment. This strategic optimization allows us to grow our loan volume while improving customer acquisition cost efficiency, driving superior unit economics across our portfolio. Secondly, we have also broadened our traffic channel mix by adding three new partnerships this quarter, including collaborations with travel and lifestyle platforms. These partnerships are already contributing to our borrower acquisition and engagement. Thirdly, we continue to see exceptional results from our AI-driven initiatives, which are a cornerstone of our operations. In April, our proprietary large language model, Zhiyu, received filing approval for commercial use. marking a key milestone in applying our AI technology to enhance marketing and engagement. During the first quarter of this year, Zhiyu generated over 550 advertising pieces in China and 20 video sets, 200 advertising texts, and 200 images in the Philippines, streamlining campaigns and boost impact. Moreover, our AI marketing system continues to demonstrate strong performance. Currently, our AI customer service system handles over 30 million calls per month, boosting acquisition efficiency and cutting labor costs. Specifically, for existing customer operations, in the first quarter of this year, Our system serves over 20 million existing borrowers with advancements in semantic recognition and intent detection, enabling more meaningful and efficient interactions. On average, customer interactions achieved 7.1 rounds per session in the first quarter, up from 6.6 rounds in the prior quarter. which further improves sales conversion. Furthermore, customer service efficiency has also seen concrete improvement. The 22nd call pick-up rate has increased to 96% in the first quarter this year from 85% in the prior quarter, delivering a faster, more seamless customer experience. and reinforcing our commitment to high-quality service standards. Additionally, we have launched an AI-powered marketing prediction system, which enables personalized and precise customer targeting. Meanwhile, our proprietary AI-driven internal customer service training platform is well received among our employees. It provides a variety of training services, such as role simulations, AI-powered business phrasing suggestions, real-time AI evaluation feedback, and AI-generated training reports, which has enhanced agent communication quality and ensured compliance with operational standards. Now, let's turn to the funding aspect. In the first quarter of 2025, we added four new institutional funding partners, bringing our total number of funding sources to nearly 60. Meanwhile, our funding costs continue to decline by nine basis points in March, compared to December 2024, paving the way for our long-term high-quality growth. Regarding our asset quality, risk indicators remain stable at historical low in the first quarter of 2025. As of March 31st, delinquency rates for loans passed due for 1 to 30 days, 31 to 60 days, and 61 to 90 days, were 1.6%, 1.2%, and 1.2%, showing negligible fluctuation from the previous quarter. This stability reflects our commitment to maintaining high asset quality through rigorous risk management practices. It's worth mentioning that AI has played a pivotal role in enhancing our asset management efficiency. Take loan collection work, for instance. In the first quarter of 2025, 83% of day one delinquent cases, 29% of day two cases, and 28% day three cases in the domestic market were handled by AI collection robots. saving approximately RMB 1.9 million monthly in labor cost. In the Philippines, AI collection strategies have reduced the complaints by 14% quarter over quarter, further improving our operational efficiency and the service quality. Now, let's look at our overseas business, which continues to demonstrate strong momentum. In the first quarter of 2025, our loan volume in the Philippines reached RMB 123.7 million, representing a 74% growth compared to the fourth quarter of 2024, with new borrowers' loan facilitation up 108% quarter over quarter, paving the way for our continued growth in the next phase, as we will drive up our repeat borrowing later this year. Looking ahead, we anticipate a double-digit growth in loan volume in the Philippines for the second quarter this year. Meanwhile, preparations for our expansion into Indonesia are progressing well, with operations expected to launch in the second half of 2025. We are also leveraging AI to optimize marketing enhance intent recognition, and reduce costs, further supporting our international growth. With that said, AI remains central to our strategy. In addition to using AI in our operations, we are expanding our AI ecosystem through investments in AI technologies and exploring potential acquisition opportunities globally. These efforts support collaboration while speeding up innovation and time to market. Now, go on to our insurance business. Our insurance brokerage market continues to face headwinds due to regulatory tightening and the market contraction, particularly in the life insurance segment. In the first quarter of 2025, Our total premiums reached RMB 801.8 million, with revenue of RMB 71.5 million, reflecting a sharp decline of 12% and 43% year over year, in line with broader industry trends. To navigate these challenges, we are adopting a dual-pronged strategy. For life insurance, we are leveraging new media, customer acquisition, and digital channels to drive momentum. For property insurance, we are capitalizing on emerging opportunities by expanding embedded insurance in sectors such as AI robots and the low-altitude economy. By focusing on providing tailored, high-value products we are aligning with new growth areas in the economy, driving innovation and strengthening our partnerships. Based on current assessments, we anticipate a remarkable recovery in our insurance brokerage business next quarter. Moreover, we are also seeing growing synergies between our lending and insurance businesses with premiums from cross-settings up 67% quarter over quarter, demonstrating the effectiveness of our integrated business model. Now for the consumption and lifestyle business segment. Following a strategic review, we determined that the segment has reached an optimal scale with high penetration. It will require a substantial investment to grow the business to the next level. As a result, we are realigning resources to focus more on financial services and AI-driven innovation, where we see greater opportunities for sustainable growth. As we look ahead to 2025, we see significant opportunities for both our core business and the new areas emerging as we transform into a more international and technology-driven organization. We will continue to emphasize AI-driven innovation and application as one of our core pillars of growth. By pursuing a path of global, high-quality development, we are confident in our ability to achieve sustainable progress, and we will remain focused on creating long-term value for our customers, partners, and shareholders. Finally, we have a management change to announce. Mr. Yuning Feng, our current CFO, will step down from his position on July 30, 2025 due to personal reasons. We sincerely thank Yuning for her dedication and contributions to Elon Digital and wish him all the best in his future endeavors. We are delighted to welcome Mr. William Hui as our new CFO. With nearly two decades of experience in investment banking and capital markets, William has a strong track record in global investment operations. Since joining our parent company, Credit East, 2017, he has played a key role in driving investment and capital market strategy. His extensive leadership background and expertise are invaluable as we continue to grow and strengthen our organization. With that, I will pass it to Yuning, who will go through the financial performance for this quarter.

Thank you, Mr. Yang, and thank you for all your kind wishes. So, hello, everyone. On this call, I will be focused on our key financial highlights. Please refer to our Earnings Release and Error Deck for further details, both available on our website. Firstly, we are pleased to report a steady growth in the first quarter of 2025. Our total revenue increased 13% year-over-year to RMB 1.6 billion. In the financial service segment, total loan facilitation reached $15.2 billion in the first quarter, up 28% year-over-year. The growth was primarily driven by robust demand for small revolving loan products, coupled with a steady increase in demand from repeat higher quality borrowers. The platform's ability to attract, retain, and nurture high-quality borrowers has been a key driver of the sustained growth in Long Roland. As a result, revenue from this segment surged by 59% year-over-year to RMB 1.2 billion in the first quarter, further highlighting the platform's success in meeting growing customer demands. In the fourth quarter, the revenue from guaranteed service reached RMB 318 million compared to 17 million in the same period last year, reflecting the growing loan volume facilitated under the risk-taking model. As loan balance under risk-taking model continue to grow, we expect higher revenue contribution from the guaranteed services. In the insurance sector, our gross return premium totaled RMB 802 million in the first quarter of 2025, making a 12% year-over-year decline. The decline was mainly driven by industry-wide new sales contraction amid regulatory changes. Consequently, revenue from our insurance segment declined 43% year-over-year to RMB 71 million in the consumption and lifestyle segment. As we strategically scaled back product offering since the second half in 2024, the total revenue dropped 40% year-over-year to RMB 308 million. Following our strategic review, just as Mr. Tang mentioned, we have decided to focus more on our financial service and AI-driven innovation to optimize our ROI as we see greater business opportunity there. On the expense side, sales and marketing spend in the first quarter edged down 0.1% year-over-year to RMB 277 million, which remains stable. This reflects better cost efficiency from development of our AI technology. Research and development expenses increased 112% year-over-year to RMB 86 million as we increased our investment in AI productivity technologies, strategic recruitment of specialized talent. Origination, servicing, and other operating costs was RMB 225 million in the fourth quarter. down 4% year-on-year, which remains stable. GMA expenses for the quarter increased by 15% year-over-year to RMB 96 million. The increase reflects our enhanced incentive bonuses and increased employee benefit expenses. The allowance for contract assets and receivables for the quarter was IMB 153 million of 49% year-over-year. This mainly driven by the continued growth of loan volume facilitated on our platform, as well as our cautious approach to risk management. Provision for contingent liability this quarter increased year-over-year to RMB $411 million. This reflects the higher long-volume growth facilitated under our risk-taking model, which, in accordance with our current accounting standard, require substantial upfront provision while the corresponding revenue will be recognized on a monthly basis through our throughout a loan's lifestyle. So on the bottom line, net income of this quarter was RMB 248 million, decreased 49% year over year. The decline in net income can be attributed to four key factors. First, substantial upfront provision were allocated due to growing in loan volume under our risk-taking business model. a product model. Second, research and development expenses increased as we continued to enhance our in-house AI capabilities. Thirdly, there was a reduction in overall profitability within the insurance business as well as lifestyle and consumption business segment. Regarding our cash flow, we generated approximately RMB 479 million net cash from our operations in the first quarter. On our balance sheet, our cash and cash equivalents remain strong at RMB 4 billion, underscoring our financial flexibility and positioning us to capitalize our strategic opportunities. Lastly, on our business outlook, Based on our assessment of current business and marketing condition, we expect our revenue for the second quarter of 2025 to stand between RMB 1.6 billion to RMB 1.7 billion, representing a 7% to 14% year-on-year increase with a healthy net profit margin. This represents our current and preliminary assessment, which may be subject to changes and then 70s.

So here we have concluded our remarks.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Chris Wu from Look Capital. Please go ahead.

Hey, thank you. Perhaps my question is what kind of impact or changes do you expect from the new loan Thank you.

Okay, thank you for the question. The recent loan facilitation regulation in China I believe is a significant step toward formalizing and stabilizing the industry within the country's financial framework. So these rules promote greater transparencies and regulatory clarity. which align with the government's awarded goals of supporting financially robust lenders and fostering healthy industry growth. So for UN Digital, We benefited from, it is beneficial for a big platform like us as the industry will see, we likely see an acceleration in industry consolidation. So as we are already on the white list of our funding partners, so we believe this is good news for us.

Thanks, I hope that answers your question, Craig. And next question? Yeah, do you have any other questions?

Yeah, can you provide some details on the international expansion? Thank you.

Thanks. And Tangzong, will you answer this question?

Yes, sure. Previously reported international business is very strategic for us and will grow into a significant part of our revenue and value in the future. I hope, yeah, not... too far away. And we are making very solid progress in the Philippines, as I earlier reported. Yeah. And the second quarter will likely see also double digit growth. And also, we are already profitable there. And so AI is playing a very key role in the Philippines and I expect also in other markets, international markets. And yeah, we are working closely with our partner in Indonesia for the launch, yeah, soon. sooner rather than later, I hope, in the beginning of the second half of the year. And because our partner has very rich resources in Indonesia, and we contribute our great technology capability and also FinTech experience, in mainland China and also in the Philippines. So there's strong synergy between the partners. And I very much hope that our results in Indonesia will also be very positive. William, you have more color to add?

Yeah, well, I'll just add some financial context into it. So in Q1, our international transaction volume has reached 1.24 billion RMB. That's up 75% quarter over quarter with a lower facilitation for new borrowers growing by 108%. So we expect a continued double-digit growth in low volume in the second quarter. So in Indonesia, as Min just mentioned, we are preparing for the launch, and we expect it will launch in the second half of this year. And in Myanmar, besides the Philippines and Indonesia, the possibilities of the other markets, such as the Middle East or even the Europe.

Thank you, Ola. And I hope that answers the question, Chris.

Thank you.

Thank you. Our next question comes from the line of Dale Tiongson, a shareholder. Please go ahead.

Hi, thank you for taking my question. I just wanted to ask about the crypto asset that appeared on the balance sheet this quarter and then also the fair value adjustment. So any context there would be great.

Kyle, this is about what asset?

Crypto asset. And then also I think there's a fair value adjustment that, um, took place in the quarter and in the cashflow statement, it looked like it might have been related to the crypto asset.

Yeah. Uh, this is a part of our, uh, yeah, effort to, uh, yeah. Invest our, uh, uh, cash and, uh, yeah. Uh, so, uh, crypto crypto is, uh, becoming more mainstream and part of the financial system. So it's a minority piece of our investment effort. And in the first quarter, it experienced some value drop. But as we see, its value has gone up. Yeah, so we expect some fluctuation, yeah, in this emerging asset class. But, yeah, we are hopeful that, yeah, we are making sure the investment and things will work out. William, you have more color to add?

So yes, in the first quarter we have allocated a small amount of our cash into the curricular assets as we explore new ways to manage our especially overseas cash and cash equivalent in our balance sheet. As Mr. Tang mentioned, in the first quarter there are some market fluctuations and we have managing our petitioning during the first quarter and second quarter. And we are happy to see that actually the foundation we see has been already – the asset value has been going back in the second quarter. And in the fourth quarter, the fair value changes on this investment has been approximately $70 million. I hope that answers the question.

Yeah, that answers it. Thank you. Yeah, if you exclude that adjustment for fat value, we can see that the adjusted EBITDA in the first quarter was 325 million, which is quite stable compared to the last quarter. So, yeah, we expect the fat value adjustment will be lifted in the second quarter this year.

Okay, and then on the guarantee business.

Just to correct the fair value of changes in this happen class of 17 and then RMB.

Yeah.

Great. And then when do you expect the guarantee business to sort of stabilize? Just in terms of, like, it looks like you're still ramping it. When do you expect it to stabilize and potentially show profitability?

Yeah, currently the guaranteed basis is at around 40% level, and we believe less than 50% is our optimal target. So we expect it will continue to grow slightly in the next couple of quarters, and then after that it will start to come down as our non-guaranteed basis to outgrow the self-guaranteed basis.

Okay. I don't have any other questions. Thank you.

Thank you. Our next question comes from the line of Bruce Oren from Black Lab. Please go ahead.

Yeah, thank you. First, I'd like to say I'm delighted that Urine Digital expects to benefit from consolidation in the new regulatory environment. I have two questions. First, concerning the six-fold increase provision for contingent liabilities, which has now grown to the largest operating cost and expense, why would a higher volume of loans decrease profitability, especially since delinquency rates have remained stable? And my second question is, can you offer any insight into Yeren's dividend commitment for later this year? Thank you.

Okay. To answer your first question about the six times the deposition, it's because of the we are taking a bigger position in the self-guarantee business. With that, according to the accounting standards, we need to make the relevant provisions immediately, even though the revenue will come on a month-by-month basis. So with that, that's why we see a hit on our on our margins as the loan volume grows in the self-guaranteed assets. So I think that answered the kind of discrepancy between why the delinquency is low but the provision is high because it's more like an accounting treatment for us. So for your second question about the dividend, I think we are committed to our semi-annual dividend policies to ensuring the consistent value is returned to our investors. So according to our semi-annual dividend policies, our current dividend payout ratio stands at around 10% based on the earnings of the entire six-month period. So while our payout ratio reached around 20%, when we last pay our dividends in May. So moving forward we are carefully assessing the balance between increasing shareholder return and reinvesting in the high potential opportunities and innovation to drive a more sustainable long-term growth. So this strategic evaluation will guide us our decision to

Yeah, and then we'll do cash dividends next quarter. We'll make the announcement next quarter because it is semi-annual.

At the same time, we are also noticing and comparing the dividend policies of our peers, and then we will make a decision that will maximize the variance for our shareholders.

Hope that answers your question. Yes, a small follow-up. I fail to completely understand. With the higher provision for contingent liabilities, is that a one-off for this quarter, or can we expect levels of that level for continuing quarters? Thank you.

Every time that we increase the loan tolerance in this self-guarantee loans, then we need to increase our provision proportionally. So I think as that, the loan volume, in that category, continue to rise, and as we expect, it will peak at around Q2 or Q3. Then after Q3, we will see that the provision will start to tell off, but at the same time, the loan that we made earlier in Q1, we will start getting more interest revenue from it. So that will more or less offset the impact on the contingency liability. I think the way it works is when that loan balance reach a steady state, that provision will, the change in provision will start.

Hope that answers your question. And back to you, operator.

Thank you. This concludes our question and answer session for today. If you have any further questions, you can please connect the IR team of Year in Digital. The conference has now concluded.

Thank you.

Thank you for attending today's presentation. You may now disconnect.