Q1 2023 Qifu Technology Inc Earnings Call

Speaker 1: Thanks for watching!

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Operator: Ladies and gentlemen, thank you for standing by, and welcome to Qifu Technology's Q1 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press dial 11 on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press dial 11 again. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to Ms. Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen.

Speaker 2: Ladies and gentlemen, thank you for standing by and welcome to Tfue Technology's first quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.

Speaker 2: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please open note today's event is being recorded.

Speaker 2: 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.

Karen Ji: Thank you, operator. Hello, everyone, and welcome to Qifu Technology's Q1 2023 Earnings Conference Call. Our earnings release was distributed. Joining me today is Mr. Wu Haisheng, our CEO, Ms. Alex Xu, our CFO, and Mr. Zheng Yan, our CRO. 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 measures to GAAP measures. Also, please note that unless otherwise stated, all figures. Over to our CEO, Mr. Wu Haisheng, please go ahead.

Speaker 2: Thank you, operator. Hello everyone and welcome to Gifu Technologies first quarter 2023 earnings conference call. Our earnings release was distributed.

Speaker 2: Thank you.

Speaker 2: Ms. Alex Xu, our CFO , and Mr. Tien Yan, our CFO . Before we start, I would like to refer you to our safe harbor statement in the earnings price release, which applies to this call as we will make certain forward-looking statements.

Speaker 2: you on CFO and Mr. Tianyin, our CFO . Before we start, I would like to refer you to our safe harbor statements in the earnings press release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussion

Speaker 2: of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures.

Speaker 2: Also, please note that unless otherwise stated, all figures...

Speaker 2: Now, over to our CEO Mr Wuhan Qian, traffic efficiency instrumental. Okay.

Haisheng Wu: 好，谢谢Karen。大家好，首先感谢大家参加我们这次季度电话会议。

Speaker 3: Well, here's your car.

Karen Ji: Joining our call.

Speaker 4: We have been there.

Speaker 5: Thank you.

Haisheng Wu: 截止到我们2023年一季度末，我们平台成功连接了150家金融机构，和服务了4,600万累计授信用户。一季度的撮合放款规模达到RMB1,095亿，同比增长10.7%。累计授信用户同比增长15.6%。在今年宏观环境不温不火复苏的背景下，我们应该说是实现了一个超过我们预期的增长。我们可以看到今年以来，需求是在逐步地、逐月地稳步地上升，我们的风险指标也在持续地改善，整体趋势是向上的。

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Karen Ji: By the end of Q1, our platform cumulatively connected approximately 46 million users with approved credit lines and a total of 150 financial institutions. Total loan facilitation and origination volume on our platform reached RMB 109.5 billion, up by 10.7% year over year and 4.7% quarter over quarter. Cumulative number of users with approved credit lines increased 15.6% year over year. The growth was better than our initial expectation against the back of the rate recovery in China's macro economy. Since the beginning of this year, we have seen positive overall trends in our business, including credit amounts from users steadily increasing and continuous improvements across multiple risk indicators.

Speaker 2: over year and 4.7 percent total over quarters. The related number of users with approved credit lines increased 15.6 percent year over year. The growth was better than our initial expectation against the back of the rate recovery in China's macro economy.

Speaker 2: Since the beginning of this year, we have seen positive overall trends in our business, including credit demand from users, steadily increasing and continuous improvements across multiple risk indicators.

Haisheng Wu: 随着我们整体课程的大规模优化的完成，我们的平均定价在一季度继续保持了稳定。风险模型的迭代，我们持续进行。过去的一年里面，我们发布了超过1,000个策略的版本迭代，迭代的规则数超过了3万多条。我们的征信模型也在持续地完善。从去年Q3开始，我们将人才的征信大规模地引入到代工的风险评估中，衍生数据的维度达到两万多条。因此给我们承运用户的这种价值提供了风险当中一个很好的保障。由于我们风险识别的精准度的不断提升，从去年到今年四月份，我们手鱼的备忘的逾期率下降了37个BP，30天的回收率上升了189个BP。目前我们的风险水平已经达到甚至超过我们的既定目标，而且还在持续优化。因此让我们非常有信心在未来对我们的获客端有很大的弹性支持。

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Karen Ji: Pricing remained stable during the quarter with our user base having been substantially optimized. At the same time, we continue to upgrade our risk management models, including the release of more than 1,000 version updates and iteration of over 30,000 strategic rules to our credit assessment models over the past 12 months. We also further upgraded our PBOC credit data assessment models. Since Q3 last year, we have started to incorporate PBOC credit data into our ongoing post credit assessment process on a large scale. With over 20,000 derived data dimensions, we are able to unlock the value of our existing users with enhanced credit assessment capabilities. Supported by our constantly improving ability to accurately identify risks. Our day one delinquency rate in April 2023 decreased by 37 basis points from December 2022, while our M1 collection rate increased by 189 basis points for the same period.

Pricing remains stable during the quarter with our user base having been substantially optimized. At the same time, we continue to upgrade our risk management models, including the release of more than 1,000 version updates and iteration of over 30,000 strategic rules.

to our credit assessment models over the past 12 months. We also further upgraded our PBOC credit data assessment models. Since Q3 last year, we have started to incorporate PBOC credit data into our ongoing post-credit assessment process on a large scale. With over 20,000 derived data dimensions,

we are able to unlock the value of our existing users with enhanced product adjustment capabilities.

Supported by our constantly improving ability to accurately identify risks, our day-one delinquency rate in April 2023 decreased by 37 basis points from December 2022, while our M1 production rate decreased by 37 basis points from December 2022.

Karen Ji: With our risk performance having substantially reached our target, we are more confident in gradually ramping up investments in customer acquisition in the near term.

increased by 189 basis points for the same period.

With our risk performance having potentially reached our target, we are more confident in gradually ramping up investments in customer acquisition in the near term.

Haisheng Wu: 从资金的角度来看，一季度社融的增速是10%，M2的增速是12.7%，所以市场的流动性依然很宽裕。对我们自己来讲的话，各种金融机构在资金端的分散度进一步提升，资金的成本相比Q4有个进一步的压价，20个BP。从ABS发行来看，我们在助贷合作中所展现的这种良好的风控表现，让我们获取了更多的金融机构合作伙伴，对于我们ABS的这种认同，保障了我们ABS的这种进一步的发行。一季度我们发行了23亿的ABS，发行规模同比增加了77%，远高于消费金融行业资产证券化产品的市场发行的速度。ABS发行的平均成本也进一步降低了17个BP，因此进一步摊薄了我们整体的资金成本。我们预计未来的几个季度里面，资金成本应该会保持平稳，我们也会继续去优化我们机构的合作的结构，来维持我们前端的这种强大的优势。

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Karen Ji: Liquidity in the financial system remained ample during the quarter, with total social financing and M2 money supply increasing by 10% and 12.7% year over year respectively. This enable us to further diversify our funding sources and reduce our funding costs by 30 basis points sequentially. In addition, with our solid risk performance in the loan facilitation model, we have obtained more allocation from our financial institution partners for ABS issuance, thereby accelerating our pace of issuance. In Q1, we issued RMB 2.3 billion of ABS at 77% year over year, far outpacing the growth of overall consumer loan ABS issuance in China. Our funding costs associated with ABS issuance also decreased by 17 basis points sequentially, contributing to a further reduction in overall funding costs. Going forward, we will continue to deepen our partnerships with financial institutions and strengthen our competitive edge in terms of funding costs.

The credit in the financial system will be made ample during the quarter with total social financing and the end-to-money supply increasing by 10% and 12.7% year-over-year respectively. This enables us to further diversify our funding sources and reduce our funding costs by 30 basis points sequentially. In addition, with our solid risk performance in the loan facilitation model, we have obtained

Our funding costs associated with ACS issues also decreased by 17 basis points sequentially, contributing to a further reduction in overall funding costs. Going forward, we will continue to deepen our partnerships with financial institutions and strengthen our competitive edge in terms of funding costs. We expect overall funding costs to remain in the range of $2.5 billion in the next few months.

Karen Ji: We expect overall funding costs to remain generally stable over the next two quarters.

Haisheng Wu: 在获客方面，一季度我们和哔哩哔哩达成了一些合作协议，成为了他们首批金融科技投放的合作伙伴。同时我们也完成了与多家头部手机厂商的这种精准化投放的这种技术部署。投放的模式升级后，为我们优化应用商店的获客效率提供了很大的帮助。比如说我们在一些应用商店的投放里面，进行这种精准投放，对比传统的这种付费模式来讲，我们的CPA可以降低20%。另外在接入方面，我们一季度接入了更多的场景，新增的新用户环比增长是14.5%。我们也在探索一些新型的获客方式。我们短视频的直播已经开始陆续上线，我们也在一些短视频的平台上开拓直播，并举行了首次直播现场。我们看到这个效果还是比我们预期中要好很多很多的。

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Karen Ji: In terms of customer acquisition in Q1, we enter into a cooperation agreement with Bilibili during the quarter, becoming one of its first batch of fintech marketing partners. We also launched precision marketing with the RTA model in app stores of major mobile phone . Graded marketing model will help us improve our marketing efficiency on the relevant app store platforms. For example, our customer acquisition cost per credit on 1.20% lower than it had been under the traditional model. Within our embedded finance business, we connected with additional traffic platforms, which resulted of new users receiving credit lines. In addition, we have been exploring innovative ways to acquire new customers. The official live streaming account for our 360 digital product was launched on a short-form video platform in April. The marketing effectiveness is better than our expectations.

In terms of customer acquisition in Q1, we entered into an operation agreement with Bilibili during the portrait, becoming one of its first batch of Dintech marketing partners. We also launched precision marketing with the RTA model in the App Store.

is 20% lower than it had been in the traditional model. Within our embedded finance business, we connected with additional traffic platforms, which resulted in a month later!!"

is 20% lower than it had been in the traditional model. Within our embedded finance business, we connected with additional traffic platforms, which results of new users receiving credit lines.

In addition, we have been exploring innovative ways to acquire new customers.

The official live streaming account for our 360 digital product was launched on a short form video platform in April .

account for our 360 digital product was launched on a short form video platform in April . The marketing effect is better than our expectation.

Haisheng Wu: 在我们这个存量用户的经营上，我们不断增加对用户的触达覆盖，同时也完善我们的运营策略，提升用户的转化和流程。一季度我们引入企业微信作为我们存量用户的一个触达和运营手段，同时我们也引导客户完成完善动资和一些征信材料的提交。目前我们这种新的渠道覆盖了20多万的存量用户，通过这种企业微信号意义可以带来非常好的转化效率的提升。同时我们也在积极地开展我们对用户的这种调研，不断地提高优化用户的体验。我们的流程率这个季度应该说也有很好的提升。

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Karen Ji: We further expanded our outreach to existing users and optimized operational strategies to boost user conversion and retention. In Q1, we introduced Enterprise WeChat as a new channel for engaging with our existing users, which drives user conversion by offering a step-by-step guide through the loan application, drawdown, and submission process. As of today, we have engaged with more than 200,000 existing users. Furthermore, we also improve the user retention by optimizing our product offerings and user experience based on extensive surveys of our existing users.

We further expanded our outreach to existing users and optimized operational strategies to boost user conversion and retention. In Q1, we introduced the Enterprise WeChat as a new channel for engaging with our existing users, which drives user conversion by offering a step-by-step guide through the loan application, drawdown, and submission process.

Haisheng Wu: 随着经济的逐渐复苏，我们也关注到了有泛小微客群的需求，是率先复苏的。因此我们也在着力建设对于泛小微客群的识别和经营能力。我们通过完善征信、发票，包括有一些行业的流水，一些行业的数据，我们可识别的小微客群占比进一步地提升到了40%以上。接下来我们会选择一些用户来做一些测试。我们想为泛小微客群设计一些差异化的产品，不断地提高我们这种产品的竞争力。我们相信未来我们对这个客群的这种产品服务价值也会有一个很大的提升空间。

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Karen Ji: As the macroeconomy gradually recovers, we have noticed that demand has been rebounding fast among broadly defined SME borrowers. To cater to this demand, we strategically strengthen our ability to identify and manage the specific segments. We enhance our customer profiling capabilities by improving data dimensions such as credit history, invoice, e-commerce transactions, billing, industry data, which allow us to accurately identify customers within the broadly defined SME segment, which accounts for more than 40% of our current user base. Our next step is to conduct pilot tests on a selected group of users aimed at developing differentiated products and fine-tuning risk management strategies for the broadly defined SME segment, which we believe has the potential to drive meaningful growth for our business in this.

As the macro economy gradually recurrence, we have noticed that demand has been rebounding fast among broadly defined SME borrowers. To capture this demand, we strategically strengthen our ability to identify and manage the specific segments.

We enhance our customer profiling capabilities by improving data dimensions such as credit history, invoice, e-commerce transactions, billing, industry data which allow us to accurately identify customers within the broadly defined SME segment which accounts for more than 40% of our current user base.

Our next step is to conduct pilot tests on a selected group of users aimed at developing differentiated products and fine-tuning risk management strategies for the broadly defined SME segment, which we believe has the potential to drive meaningful growth for our business industry.

Haisheng Wu: 在金融科技业务方面，这个季度我们的重点还是放在提升我们的产品力上。我们进一步地丰富了针对机构输出的科技解决方案，支持的产品线从个人信贷贷款扩展到个体经营贷，还有这些农户贷。基于多元化的部署方式，我们应该可以说更好地满足金融机构的各方面的需求。我们也完成了核心技术能力的这种标准化、产品化，开发出了有18个信贷的子系统，全面地覆盖了从获客到风控，到运营，到账务各个业务环节。并且我们把我们在信贷业务中所积累的这种knowhow，也内置到这个系统里面，应该说可以让我们机构合作伙伴在系统的上线初期，就能够享受到这个行业领先的这种专业的视角和方案。

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Karen Ji: For our technology solution business, our focus in Q1 was on enhancing our product capabilities. Specifically, we extended the scope of our solutions beyond personal consumer loans to include individual business loans. Our diversified deployment methods allow us to better serve the unique needs of each financial institution we work with. So far, we have developed standardized products based on our core technological capabilities and have created 18 standardized modules covering every aspect of the credit business, including customer acquisition, risk management, operations, and accounting, etc. We also incorporated our extensive credit industry know-how into the modules, which empowers financial institutions

Thank you very much.

For our technology solution business, our focus in Q1 was on enhancing our product capabilities. Specifically, we extended the scope of our solutions beyond personal consumer loans to include individual business loans. Our diversified deployment method allows us to better...

of the unique needs of each financial institution we work with.

So far, we have developed standardized products based on our core technological capabilities and created 18 standardized modules covering every aspect of the credit business, including Motion Logic.

customer acquisition with management, operations, and accounting, etc. We also incorporated our extensive credit industry know-how into the modules, which empowered financial institutions and algorithms from the moment they onboard.

Haisheng Wu: 在过去的一段时间里面，ChatGPT的出现正在很大地影响着各行各业。对于我们来讲，我们也相信这种生成式的AI在金融领域有非常多天然的应用场景。比如在各种对话机器人、智能客服、电销、催收等环节，应该说可以比过去的技术更好地理解用户的情绪，生成更好更自然的这种个性化的对话。另外就是在风控的环节，这种技术也可以更准确地去帮助我们批量处理征信报告的这种信息，生成衍生的变量，用来提高我们的这种风险识别模型。今年我们在4月份，我们公司也成立了这种一级的部门的大模型部，我们致力于让这个部门去开发各种深度学习算法、生成式的人工智能技术，在金融科技领域的这种产品化的应用。同时我们在内部也发布了一些GPT的版本。我们在目前，在催收、在电销、客服这些环节里面，我们进行一些一系列的这种分析和训练。通过这个GPT分析用户的意图，并且能够标签化。我们应该说可以看到不同的标签的用户，在催收、电销、客服在这些效果方面还是有着一个明显的差异的。因此我们通过这种技术，提升用户体验，提高公司的经营效率。同时我们也认为这种技术未来对我们这种金科业务所服务的金融机构应该有一个非常好的赋能。我们也与客户做了一些调研沟通，客户们对这种产品的期待是非常之高的。从监管层面，我们的断直连的整改在Q1应该是稳步推进。我们已经按照上报给监管部门的方案，基本上完成了断直连的改造，目前已经上线，系统已经在平稳有序地运行。相信今年在促进经济发展的总体监管思路下，行业会在非常平稳有序的监管环境下有一个健康的发展。我们展望一下今年未来几个季度。虽然现在还处在经济复苏的早期阶段，但是这个复苏的趋势是确定的。我们也相信今年会是宏观环境逐步改善的一年。我们也有信心把握住这种复苏的节奏，高质量地完成我们的目标。最后跟大家分享个消息。我们刚刚通过了提高我们为股东分红比例的一项董事会决议。这说明我们在追求一个高质量的业绩增长的同时，我们也一直很重视倾听市场的声音，希望能够持续地去回馈股东，与股东们分享公司增长的一个收益，更好地维护我们公司的价值。一会CFO Alex应该会跟大家去分享我们的分红的政策。那下面就请我们的Alex给大家分享一些财务方面的一些事情。

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Over the past few months, ChatDBT has been having significant impact on various industries since its release. We believe that generative AI technology has many natural aspects. For example, in areas such as intelligent customer service, telemarketing, and loan

CHES DPT can better understand user emotions and facilitate natural, smooth, and personalized interaction with users.

In risk management, it can derive useful information from credit reports and identify relevant factors for our risk management models. In April , we established a large language model department. This new statistical division is dedicated to developing various

deep learning algorithms and generative AI technologies specifically for applications in the financial sector.

We have already launched the first version of GPT for internal use, which is designed to perform semantic analysis in our loan collection and telemarketing process.

Through GPT analysis of user intention and labeling, we can see that the users of different labels have clear variations in the effectiveness of question and telemarketing.

Apart from applying AIGC to enhance the user experience and our operational efficiency, we also plan to gradually export such capabilities to our financial partners.

Apart from applying AIGC to enhance the user experience and our operational efficiency, we also plan to gradually export such capabilities to our financial partners. So, take a jump over there.

I hope you enjoyed the video. I hope you enjoyed the video. I hope you enjoyed the video.

Thank you very much for your attention.

On the regulatory front, we continue to make steady progress in gaining compliance with Banchilian Credit Agency Reform in Q1. We have substantially completed the required integration of systems with our financial partners according to the plan we submitted to the regulator.

So far, our long-facilitation progress through the Zantulian model has been very smooth. Given the current regulatory focus on promoting economic development, we believe the industry will be able to deliver healthy growth in a stable regulatory environment. Thank you.

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Working ahead, while the economic recovery is due in its early stage, but the trend for recovery is clear.

We believe that the macro economy environment will gradually improve throughout the remainder of the year. We are also confident in our ability to capitalize on the recovery momentum and deliver on our goals effectively. Thank you.

that the macroeconomic environment will gradually improve throughout the remainder of the year. We are also confident in our ability to capitalize on the recovery momentum and deliver on our goals effectively. Thank you very much.

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Karen Ji: Finally, I have some news to share with you all. Board of directors has just passed a resolution to increase our dividend payout ratio. As we continue to drive quality growth and create shareholder value, it is also important to listen to the market and share the benefit growth within our shareholders. We believe this will enable us to enhance the value of our company. Alex will share more about this later. With that, I will now turn the call over to our CFO, Alex, who will walk us through with our financial results for the quarter.

Thank you for your attention.

Finally, I have some news to share with you all. All the directors have just passed a resolution to increase our dividend payout ratio. As we continue to drive quality growth and create shareholder value, it is also important to listen to the market and share the benefits growth within our shareholders.

We believe this will enable us to enhance the value of our company. Alex will share more about this later. With that, I will now turn the call over to our CFO Alex, who will help us do with our financial results for the future.

Alex Xu: Thanks to Haisheng. Good morning and good evening. Welcome to our first quarter earnings call. Q1 set a positive tone for recovery year. The improvement in many aspects of our operations. User activity levels continue to improve in recent months, aside from normal seasonality. Although we still want to call the recovery a modest one, things are indeed trending a little bit better than we initially thought. As Haisheng discussed earlier, with micro conditions improving throughout 2023, we intend to focus on effort and deploy our resources to drive back to growth while maintaining desirable asset quality. In Q1, target high quality and lower risk user base and drive further improvement in risk performance. Key leading indicators, day one delinquency has been on a steady declining trend in recent quarters, was 4.1% in Q1 versus 4.3% in Q4, and further declined to approximately 4% in April.

Good morning and good evening. Welcome to our first quarter earnings call. First quarter store we will play aroundon doctors

recovery year. The improvement in many aspects of our operations. User activity levels continue to improve in recent months, aside from normal seasonality. Although we still want to call the recovery a modest one.

things are indeed trending a little bit better than we initially thought. As I discussed earlier, with micro-conditions improving throughout 2023, we intend to focus on effort and deploy our resources to drive vector growth while maintaining desirable asset quality. In Q1, Q1, our core doughnut, has maintained vital aspects and strategic benefits to edge campaigns for SAN moves. However, our main component, the

target high quality and low risk user base and drive further improvement in risk performance. Key limiting indicators in day one delinquency has been under the steady declining trend in recent quarters. It was 4.1% in Q1 versus 4.3% in Q4 and further declined to approximately 4% in April .

Alex Xu: The continuing improvement in day 1 delinquency mainly reflect the micro improvement as well as further optimization of our algorithm. 30-day collection rate was 86.2% in Q1 versus 84.7% in Q4. This sharp rebound from the COVID-disrupted Q4 mainly reflect back to normal collection operations. As economic recovery continues, we see further improvement in this metrics. By late April, 30-day collection rate already at near 87%. Total net revenue for Q1 was RMB 3.6 billion versus RMB 3.9 billion in Q4, and RMB 4.3 billion a year ago. Revenue from platform service was RMB 2.6 billion in Q1, compared to RMB 2.8 billion in Q4, and RMB 4.3 billion a year ago. The year-on-year and sequential decline was mainly due to overall decline in expected average tenor of the new loans, as well as further adjustments to existing loans' expected tenor.

The continuing improvement in day one delinquency.

mainly reflect the micro improvement, as well as further optimization of our algorithm. 30-day collection rate was 86.2%

Q1 versus 84.7% in Q4.

This sharp rebound from the COVID-disrupted Q4 mainly reflected back to normal collection operations.

As economic recovery continues, we see further improvement in these metrics. By late April , 30-day correction rate already at near 87%.

Total net revenue for Q1 was $3.6 billion versus $3.9 billion in Q4 and $4.3 billion a year ago.

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Alex Xu: During the quarter, we see increased early repayments by individual borrowers, likely driven by a few factors, including Chinese New Year, spillover effect from mortgage early repayment momentum, and oversupply of liquidity at the beginning of the year. Looking ahead, we expect early repayment level to stabilize in Q2 as above-mentioned matters or factors gradually easing. On-balance-sheet loan continue to grow at a faster pace and account for nearly 20% of the total loan volume, as we continue to drive for better utilization of our capital as well as our micro lending license. Revenue from platform service, Capital-Light, was RMB 969 million in Q1, compared to RMB 1.1 billion in Q4 and RMB 1.4 billion a year ago. The year-on-year and sequential decline was also mainly due to overall decline in expected average tenor of the new loans, as well as further adjustment to existing loans' expected tenor.

and progress further adjustments to the existing long-term plan.

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spillover effect from mortgage early repayment momentum and oversupply of liquidity at the beginning of the year.

Looking ahead, we expect early repayment level to stabilize in Q2 as above-mentioned matters or factors gradually easing.

Our balance sheet loan continues to grow at a faster pace and accounts for nearly 20% of the total loan volume. We continue to drive for better utilization of our capital as well as our micro-landing life.

Revenue from platform service capital light was $969 million in Q1 compared to $1.1 billion in Q4 and $1.4 billion a year ago. The year-on-year and sequential decline was also mainly due to overall decline in expected average container of new loans.

Alex Xu: For Q1, Capital-Light loan facilitation, ICE and other technology solution combined account for roughly 56% of the total loan volume, roughly flat versus the prior quarter. We expect the risk ratio to be relatively stable throughout this year. In the long run, we'll continue to pursue tech-driven business model while seeking a balance among various forms of non-risk-bearing solutions based on micro environments and operational conditions. During the quarter, average IRR prices of loans we originated and/or facilitated remained stable Q on Q, well within the regulatory rate cap requirement. Looking forward, we expect pricing to be relatively stable for the coming quarters. Sales and marketing expenses increased marginally Q on Q as recovery in our user activity was offset by seasonal impact of Chinese New Year. We added approximately 1.5 million new credit line users in Q1, flat versus Q4.

as well as further adjustment to existing loans expected tenure. For Q1, cap-line loan facilitation, ICE, and other technology solution combined account for roughly 56 percent of the total loan volume, roughly flat versus the prior quarter.

We expect the risk ratio to be relatively stable throughout this year. In the long run, we'll continue to pursue tech-driven business model while seeking a balance among various forms of non-risk-bearing solutions based on microenvironments and operational conditions. During the quarter,

Average IRR prices of loans we originated and or facilitated remain stable Q on Q, well within the regulatory cap requirement, rate cap requirement. Looking forward, we expect pricing to be relatively stable for the coming quarters.

Sales and marketing expenses increased marginally Q1Q as recovery in our user activity was offset by seasonal impact of Chinese New Year. We added approximately 1.5 million new credit line users in Q1, flat versus Q4. Good.

Alex Xu: User costs to acquire a new credit line user also increased marginally. While we will continue to drive for efficiency in our operation, we may adjust the pace of new user acquisition as economic recovery continues throughout 2023. Meanwhile, we'll continue to focus on re-energizing existing user base as repeat borrowers historically contribute vast majority of our growth. Although we will continue to take prudent approach to book provision against potential credit loss, we should expect increasing write backs from provisions from prior periods as overall risk profile of our loan portfolio gradually improve along with micro conditions. Total new provisions for risk-bearing loans in Q1 was approximately RMB 1.7 billion, and the write backs of the previous provisions were approximately RMB 411 million.

acquire a new credit line user also increased marginally. Well, we will continue to drive for efficiency.

we may adjust the pace of new user acquisition as economic recovery continues throughout 2023. Meanwhile, we will continue to focus on re-energizing existing user base as repeat borrowers historically contribute the vast majority of our growth. Although we will continue to take a prudent approach to book provision against potential crisis.

Alex Xu: Provision coverage ratio, which is defined as total outstanding provision divided by total outstanding delinquent loan balance between 90 and 180 days were 432% in Q1 compared to 456% in Q4. With solid operating results and stable contribution from Capital-Light model, our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was at a historical low of 3.4 times in Q1 compared to 4.2 times a year ago. A rather stable leverage ratio for the time being until non-risk-bearing contribution resume growth in the future. We generate approximately RMB 1.8 billion cash from operation in Q1, roughly flat Q-on-Q. Total cash and cash equivalent was RMB 9 billion in Q1 compared to RMB 10.9 billion in Q4. Non-restricted cash was approximately RMB 5.1 billion in Q1 compared to RMB 7.2 billion in Q4.

And the write-backs of the previous provisions were approximately $411 million. Provision coverage ratio, which is defined as total outstanding provision divided by total outstanding delinquent loan balance between 90 and 180 days. Please see review 17ference

or 432% in Q1, compared to 456% in Q4. We started operating results and stable contribution from capital-like model. Our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity.

was at a historical low of 3.4 times in Q1 compared to 4.2 times a year ago.

a rather stable leverage ratio for the time being until non-respiring contribution resume growth.

We generate approximately 1.8 billion cash from operation in Q1, roughly flat Q on Q. Total cash and cash equivalent was $9 billion in Q1 compared to $10.9 billion in Q4.

non-restrict cash was approximately 5.1 billion Q1.

Alex Xu: The sequential decline in cash position was mainly due to increased cash usage in our balance sheet lending. As we discussed earlier, with economic condition improving, we may look for opportunities to deploy resources to launch new initiatives, develop new technologies, and expand our service offerings. Non-GAAP net profit was RMB 976 million in Q1 compared to RMB 919 million in Q4. As we continue to generate healthy cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders. Since Q3 of 2021, we have paid out a total of RMB 1.34 billion cash dividends to our shareholder in six consecutive quarters. To generate high returns to our investors and solidify and expand our long-term investor base, the company's board of directors approved a new dividend plan yesterday.

compared to 7.2 billion in Q4. The sequential decline in cash position was mainly due to increased cash usage in our balance and lending. As we discussed earlier, with economic condition improving, we may look for opportunities to deploy resources.

to launch new initiatives and develop new technologies and our service offerings.

non-GAAP net profit was $976 million in Q1 compared to $919 million in Q4. As we continue to generate healthy health cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders.

Since Q3 of 2021, we have paid out a total of 1.34 billion cash dividends to our shareholder in six consecutive quarters.

To generate high returns to our investors and to solidify and expand our long-term investor base, the company's board of directors approved a new dividend plan yesterday. The new plan increased our dividend payout ratio to 20-30% in 2020.

Alex Xu: The new plan increased our dividend payout ratio to 20% to 30% from previous 15% to 20% of net profit. Also, to reduce the transaction cost for our shareholders, the new plan approves a semiannual dividend distribution schedule to replace the quarterly dividend schedule of the old plan. The first semiannual dividend payout will be declared in our Q2 earnings release. Finally, regarding our outlook for 2023, while we start to see a gradual recovery of microeconomy and our business activities are also trending a bit better than previously thought, it may still take extra time for consumers' confidence and behavior return to normal. At this junction, we still see a modest recovery in consumer credit demand, with growth rate potentially accelerating throughout the year.

from previous 15 to 20 percent of net profit. Also, to reduce the transaction cost for our shareholders, the new plan approves a semi-annual dividend distribution schedule to replace the quarterly dividend schedule of the old plan.

The first semi-annual dividend payout will be declared in our Q2 earnings release.

Finally, regarding our outlook for 2023, where we start to see a gradual recovery of microeconomy and our business activities are also trending a bit better than previously thought and may still take extra time for consumers' confidence and behavior return to normal.

At this junction, we still see a modest recovery in consumer credit demand, with growth rate potentially accelerating throughout the year.

Alex Xu: As such, we would like to maintain our full year total loan volume target for 2023 at between RMB 455 and 495 billion, representing year-on-year growth of 10% to 20%. As always, this forecast reflects the company's current and preliminary view, which is subject to material changes. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

As such, we would like to maintain our full-year total loan volume target for 2023 at between RMB $455 billion and RMB $495 billion.

representing year-on-year growth of 10 to 20 percent. As always, this work has to reflect the company's current and the preliminary view, which is subject to material change.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. For those who can speak Chinese, kindly ask your question in Chinese first, followed by English translation. In order to have enough time to address everyone on the call, please keep it to one question and one follow-up, and return to the queue if you have more questions. Once again, that's star one one for questions. Our first question comes from the line of Frank Zheng from Credit Suisse. Please ask your question, Frank.

With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

Thank you. As a reminder, to ask a question, please press star 1 on your telephone and write for your name to be announced.

To withdraw your question, please press star 1-1 again. For those who can speak Chinese, kindly ask your question in Chinese first, followed by English translation. In addition, in order to have enough time, please press star 1 again.

To address everyone on the call, please keep it to one question and one follow up and return to the queue if you have more questions. Once again, that's Star 11 for questions.

Our first question comes from the line of Frank Chin from Credit Suisse. Please ask your question, Frank.

Zheng Hao: 非常感谢管理层给我提供的机会。我是瑞信的郑豪。我有两个问题。第一个问题是关于今年接下来这段时间，运营上策略的一个重点。比如说会有更加激进的新客获取，或者是对老客的一个进一步优化，包括提拉等等一些措施，亦或者是在客户质量或者客户群体的一个进一步的提升。可否请管理层简单地进一步介绍一下？那第二个问题是关于今年的运营成本的。在运营成本上，不知道公司有没有一些措施去进一步地提高我们的运营效率。好，那我来翻译一下。Thank you management for taking my question.

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Zheng Hao: This is Frank from Credit Suisse. I have two questions. The first one is on the strategic focus for the rest of the year. Could the management provide more color on measures, for instance, more aggressive client acquisition, optimization on existing clients, and potentially further upgrade in client segments? Second question is on operating expenses. What are some of the measures the company is taking to be operationally more efficient? Thank you.

Thank you management for taking my questions. This is Frank from Credit Suisse. I have two questions. The first one is on the strategic focus for the rest of the year. Could the management provide more color on measures, for instance, more aggressive client acquisition, optimization on existing clients?

and potentially further upgrade in client segments. And second question is on operating expenses. What are some of the measures the company is taking to be operating more efficiently? Thank you.

Haisheng Wu: 好，谢谢Frank。我来回答一下第一个问题，然后运营成本那个一会儿Alex你准备。然后关于这个客户端，我们认为在今年来讲的话，新客和存量客户应该说都是我们非常重点的工作。在新客方面，我们的工作会在几个方面。第一是我们会继续提高我们对于渠道的概念和对渠道的合作的深度。我们看到这里有很多的工作可以做。我们今年在视频的直播和应用商店的AHC的投放上继续做了很多的创新，那效果也比预期的要好。第二个，我们是通过模型的识别，提高了我们对用户的洞见意认的识别，从而能够更加精准地优化我们的这个offer，提高用户的使用率。那使用率提高了，我们的平均的LTV也会得到提高，对应的新客的获客的竞争力就会变得更大。这是新客方面。Karen要不你先翻译一下。

Thank you. Thank you Frank. I hope you enjoy the video. Thank you.

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Karen Ji: Thanks Frank. I will answer your first question and I will pass the second question to Alex. Sorry. For this year, we will say the new customer and existing customer are equally important to us. In terms of the new customer acquisition, our efforts will be focused on two aspects. First, we will continue to expand our partnership with different channels and increase the depth of the partnership. For example, we have been trying the live streaming on some short video platforms, we innovatively utilize the RT modeling to our App Store marketing. The result is better than our initial expectation. Second part, we use the RT model to increase our recognition about the users' willingness to borrow. We can optimize our offer and increase our users' conversion ratio. Therefore, we can increase the LTV of our users. We will increase our competitiveness in terms of customer acquisition. This is about the new customer acquisition part.

Are we? Okay.

Thanks, Frank. I will answer your first question and I will pass the second question to Alex.

First about the... Sorry.

For this year, we want to say the new customer and existing customers are equally important interests.

So in terms of the new customer acquisition, our efforts will be focused on two aspects. First, we will continue to expand our partnership with different channels and increase the depth of the partnership. For example, we have been carrying the like.

streaming on some short form video platforms and we innovatively utilized the RT model into our App Store marketing. The result is better than our initial expectation. And the second part...

We use the RTA model to increase our recognition about the users' willingness to borrow. So we can optimize our offer and increase our users' conversion ratio.

Therefore, we can increase the LTV of our users. We will increase our competitiveness in terms of customer acquisition. This is about the new customer acquisition part.

Haisheng Wu: 对于老客来讲，我们的老客的规模是非常巨大的。这里的工作一方面是要去提高对客群触达的效率。比如我们现在开始尝试通过Enterprise WeChat与用户互动，增强了我们的触达效率。另一方面，就是我们通过模型和算法进一步地去识别不同客群的画像，针对性地去提供不同的offer。比如我们对小微客群的进一步地提升到了40%，这也会为我们后面对这个客群的offer的优化和用户的流程提供了很好的基础。

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Karen Ji: Regarding our existing users, actually we have a very significant user base of our existing users. It's very important for us to increase efforts on existing users to improve the conversion effectiveness. For example, we have tried to use Enterprise WeChat to cover our existing users to increase effectiveness for us to outreach our existing users. We refine our risk management models to better understand our users and identify different profile of our users. For example, for 40%. Later we can optimize our offer and improve our user engagement process to better engage the existing users to improve their long-term value.

Regarding our existing users, actually we have a very significant user base of our existing users. So it's very important for our press to increase efforts on existing users to improve the conversion effectiveness. For example, we have tried to use

enterprise WeChat to cover our existing users to increase effectiveness for us to outreach our existing users. And we refine our risk management models to better understand our users.

and identify different profiles of our users. For example, boards.

Thank you.

40%.

So later we can optimize our offer and improve our user engagement process to better engage the existing users to improve their long-term value.

Haisheng Wu: 总的来说，在客情上，我们认为在现在这个需求温和复苏的背景下，我们应该把更多的精力放在效率上，放在内功上，提高我们获客的准确率，来创新更多的渠道的覆盖面。从目前我们看到的和新用户来看，我们已经做到了一个非常领先的成果。如果后面市场需求上进一步地复苏，我们将会有非常好的机会去进一步地扩大我们的客户规模。

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Karen Ji: At this point, in this moderate macro economy recovery environment, we believe it is very important for us to increase our efficiency at this stage. We will increase our coverage in terms of the channel and partnership, so we can better improve our marketing efficiency. We are actually enjoy the in terms of this part, and we believe we will further increase our user base when the macro further improves.

So at this point into the moderate macro economy recovery environment, we believe it's very important for us to increase our efficiency at this stage. So we will increase our coverage in terms of the channel and the partnership.

so we can better improve our marketing efficiency. So we are actually enjoying the competitive in terms of these parts. And we believe we will further increase our user base when doing a micro-fooding.

Haisheng Wu: 好，那关于运营成本的，请Alex说一下。

Alex Xu: Okay. Hi, Frank. Basically for the operating expenses trend going forward, there are a few aspects. One, some of the operating expenses are variable costs. For example, the one we use to get credit scores cost and the one we do the transaction or sending the message for SMS. Those variable costs, we have a long-term relationship with those suppliers, and every year you can always squeeze a little bit from the cost space on the unit basis. The room for that is not really that much. The other big part of the variable cost is really customer acquisition. I think we had this kind of discussion earlier or before. Last year, our unit or per credit line user's customer acquisition cost was about RMB 370 or 360 per user. This year, we intend to lower that unit cost number to somewhere around RMB 330.

Okay, hi Frank. So basically for the operating expenses trend going forward, there are a few aspects. Some of the operating expenses are variable cost, for example, the one we use to get credit scores.

cost and the one we do the transaction or sending the message for SM at the mass. Those variable costs, we have a long term relationship with those suppliers and every year you can always squeeze a little bit of.

from the cost base on the unit basis, but the room for that is not really that much. And then the other big part of the variable cost is really customer acquisition. I think we had this kind of discussion earlier or before.

Last year, our unit or per credit line user's customer appreciation cost was about 370 or 360 RMB per user. This year, we intend to lower that unit cost number to somewhere around 330.

Alex Xu: The first quarter was only about 280, less than 290. The following quarters, with the increased pace of customer acquisition, you may see some increase in sales marketing spending. Overall, on a full-year basis, we will see a lowered unit cost for per credit line user's acquisition cost. Other back-office related fixed costs, we have a pretty tight internal control, including headcounts and also the IT spendings there. Thank you.

The first quarter was only about 200, 280, less than 290. So the following quarters with the kind of increased pace of a customer acquisition, you may see some increase in the, in sales marketing spending, but overall on the four year basis, we will see a...

Operator: Right. Thank you. Our next question comes from the line of Alex Ye from UBS. Please ask your question, Alex.

Right, thank you. Our next question comes from the line of Alex Yeh from UBS. Please ask your question, Alex.

Alex Ye: 管理层早上好。我这个问题主要是关于定价这一块的展望。就是我们看到今年宏观上的一些数据，看到的一个消费复苏的力度，其实还是比较温和，然后我们比如看到银行端整体的一个消费信贷，包括四月的一个增长也是比较疲弱的。我就想请问一下，我们在这个竞争的角度上，现在是怎么样一个情况？就包括来自各种不同类型的竞争者，目前对我们的压力有没有增加？然后第二个角度是，那接下来我们有没有需要，比如说要去提高老客户动资的一个意愿，有一些主动降价的一个计划来促进贷款增速的增长。就综合来看，我们对于这个贷款定价未来一年的一个展望。So my question is mainly on the loan pricing outlook.

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So my question is mainly on the loan pricing outlook. So firstly, in terms of the competitive landscape, we have seen the overall consumption recovery and consumer credit data has been quite moderate.

Alex Ye: Firstly, in terms of the competitive landscape, we have seen the overall consumption recovery and consumer credit data has been quite modest in April, so could you share some color in terms of what's the current trend you have seen regarding the competitive pressure from different players? Secondly, would you consider lowering your loan pricing in order to stimulate some long-term demand from your existing customer base? Thank you.

in April , so can you share some color in terms of what's the current trend you have seen regarding the capacity to pressure from different players and secondly would you would you consider lowering your loan pricing in order to stimulate some

Haisheng Wu: OK。Alex，我回答一下。从竞争的角度，我首先认为对于我们这家公司或者对这个行业来讲，用户需求的复苏带来的影响会比竞争带来的影响相对要大一些。这是第一点。

long drawdown demand from your existing customer base. Thank you.

Okay. Okay.

Okay. Okay, Alex. Okay.

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Karen Ji: Thanks Alex. From the competition perspective, we think for our industry, the recovery of the credit demand is more important for the competition. The impact from the recovery of user demand is more important from the impact of the competition.

Thank you Alex. From the competition perspective, we think for our industry, the competition industry that's working hard on erasing that

Recovery of the credit demand is more important for the competition. The impact from the recovery of user demand is more important from the impact of the competition.

Haisheng Wu: 从竞争这个问题本身来看，对我们来说，一方面是现在行业的格局基本上形成了一个相对清晰的区间上的定位，一些大型的银行和一些小的互联网公司都在不同的区间里面去服务自己的市场，重叠的用户不会太高。另一方面，从我们对于客群的服务能力上讲，我们这家公司应该说相对对客群覆盖比较完整的。我们可以去覆盖更低利率的客户，也能去覆盖相对较高利率的客户。我们因此会根据竞争的情况，通过提高模型的精准度，差异化去为我们的用户提供服务。因此理论上，只要模型足够的精准，我们可以提供比竞争对手更有竞争力的offer。

I think that's all for now. Thank you very much for listening. We hope you enjoyed the video. Please like and subscribe. We hope you have a good time. We hope you have a good time. Thank you for watching. We hope you have a good time. We hope you have a good time. We hope you have a good time.

I would like to thank you for your support. Thank you for your support.

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Karen Ji: We believe the segmentation of this industry is very clear at this stage. We are actually quite differentiated from the large banks and also the smaller players. We targeting different target customers and the pricing segments. There is limited overlapping among the competitors. For our service capability, we think we can have a wide coverage of different kind of users. We can cover the lower pricing users and also the higher pricing users. We can further refine our risk management models to provide differentiated products and offerings to better serve our users. Theoretically, as long as our model is accurate enough, we can have very strong competitiveness.

On the other hand, we believe the segmentation of this industry is very clear at this stage. We are actually quite differentiated from the large banks and also the smaller players.

We target different target customers and the pricing segments. So there is limited over-lapping among the competitors.

On the other hand, for our service capabilities, we think we can have a wide coverage of different kinds of users. We can cover the lower pricing users and also the higher pricing users. We can further refine our risk.

risk management models to provide differentiated products and offerings to better serve our users. So theoretically, as long as our model is accurate enough, we can have very strong competitiveness.

to provide the differentiated products and offerings to better serve our users. So theoretically, as long as our model is accurate enough, we can have very strong competitiveness.

Haisheng Wu: 从定价角度，我们其实长期以来一直是在使用降价这个工具的。我们对不同的客群会使用一些降价工具。那这个会是一个基于模型训练以后的，只要模型足够的精准，整体上这些降价的客群属于是一个增量的交易，因此它也会产生一个增量的收益。从定价的整体趋势上，我们认为我们的平均应该还是会保持一个相对平稳的定价。

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I hope you enjoyed this video. If you did, please like and subscribe. Thank you for watching. Please subscribe to my channel.

Click here to see the other videos.

Karen Ji: On pricing perspective, actually we can try to reduce the pricing to better activate and engage some of our users. As long as our model is accurate enough, we can better serve them and add increased value from this sort of strategy. From the overall pricing perspective, we think the future pricing will maintain at current level, will maintain a stable level compared to the current level.

Pricing perspective, actually we can try to reduce the pricing to better activate and engage some of our users. As long as our model is accurate enough, we can...

better serve them and at increased value from this sort of strategy. So from the overall pricing perspective, we think the future pricing will maintain a stable level compared to the current.

Haisheng Wu: Alex，我的回答就是这些，有没有回答你？

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Operator: All right, thank you. Our next question comes from the line of Richard Xu from Morgan Stanley. Please go ahead, Richard.

All right, thank you. Our next question comes from the line of Richard Hsu from Morgan Stanley . Please go ahead, Richard.

Richard Xu: 好的，感谢。我就想请问一下需求方面，不知道我们最近看到环比来看，从借款的需求有哪些变化？我们现在看确实消费复苏也是这个分化比较明显。从我们这个数据来看，有没有区域间或者不同人群间，对贷款需求的一个变化，或者收入不同之间的变化，资产质量是否也有不同的分化？So essentially my question is on the loan demands, particularly on the sequential change from the potential borrowers in recent months.

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So essentially my question is on the loan demand, particularly on the sequential change now?

Richard Xu: On any divergent trends among the different region groups of borrowers in terms of loan demand, income growth, and credit quality. Thank you.

from the potential borrowers in recent months on any divergent trends among the different region groups of borrowers in terms of loan demand, income growth, and credit quality. Thank you.

in recent months on any divergent trends among different region groups of borrowers in terms of loan demand, income growth, and credit quality. Thank you.

Haisheng Wu: 好。谢谢。我们确实也看到了分化。所以我们认为会有两个特征，一个是叫温和复苏，一个是叫差异化的复苏。差异化确实会有这几个方面的表现。从区域上来看，江苏、山东、河北、上海这些区域相对复苏会比较快一些。这个和国家公布的一季度各个地区人民币贷款的增量相对还是比较一致的。从客群的差异化来看，我们看到质量比较好的客群，恢复的速度会更快一些，额度的需求也会更大一些。另外从客群来看的话，泛小微客群的需求复苏相对也会快一些。其中主要是像服务业这种，它的需求复苏会比较明显。

Yes, I understand. I think the question is, and I think it's a bit difficult, but I think it's a good question. I think it's a good question. I think it's a good question.

I would like to thank all of you for your time. I hope you will enjoy the event. Thank you for your time. I hope you will enjoy the event. I hope you will enjoy the event. I hope you will enjoy the event. Thank you for your time.

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Karen Ji: In terms of credit demand recovery, we have seen two trends. One is moderate recovery, the other is divergent recovery. In terms of the divergent recovery, we look at this problem in several aspects. From region perspective, Jiangsu, Shandong, Shanghai, Hebei, those regions are recovering faster than other regions, which is in line with the incremental social financing by regions published by the government in Q1. From customer segment perspective, we have seen higher quality users recovering relatively faster with increasing credit size. On the other hand, we have seen the broadly defined SME group recovering relatively faster, especially from the service industries. Thank you.

In terms of credit demand recovery, we have seen two trends. One is moderate recovery, the other is

divergence recovery. So in terms of the diversified recovery, we look at this problem in several aspects from a region perspective, Jiangsu, Shenzong, Shanghai, Hebei, those regions are recovering faster than other regions.

which is in line with the incremental social financing by region published by the government in Q1. From customer segment perspective, we have seen higher quality users recovering relatively faster with increasing credit size.

On the other hand, we have seen the Broadly Defined SME group recovering relatively faster, especially from the service industries.

And on the other hand, we have seen the Broadly Defined SME Group recovering relatively faster, especially for those from the service industries. Thank you.

Operator: Right. Thank you. We have reached the end of the question and answer session. Thank you very much for all your questions. I'll now turn the conference back to the management team for closing remarks.

Right, thank you. We have reached the end of the question and answer session. Thank you very much for all your questions. I'll now turn the conference back to the management team for closing remarks.

Haisheng Wu: OK, thank you. Thank you for everyone to join us. If you have additional questions, we can discuss offline. Thank you. Have a good day. Bye bye.

Okay, thank you. Thanks for everyone to join us. If you have additional questions, we can discuss offline. Thank you. Have a good day. Bye bye.

Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Ladies and gentlemen, thank you for standing by, and welcome to Qifu Technology Q1 2023 Earnings Conference Call. At this time, all participants are in listen only mode. After speakers presentation, there will be question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to Miss Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen.

This concludes today's conference call. Thank you for participating. You may now disconnect.

conference call. Thank you for participating. You may now disconnect.

We can't hear you.

And.

Our dispense are in listen only mode.

After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please open notes today.

Karen Ji: Thank you, operator. Hello everyone, welcome to Qifu Technology Q1 2023 Earnings Conference Call. Our earnings release was distributed. Joining me today is Mr. Wu Haisheng, our CEO, Miss Alex Xu, our CFO, and Mr. Yan Zheng, our CRO. Before we start, I would like to refer you to our Safe Harbor statements in the earnings press release, which applies to this call as we will make certain forward-looking statements. This call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures. Please note that unless otherwise stated, all figures to our CEO, Mr. Wu Haisheng, please go ahead.

first quarter 2023 earnings conference call. Our earnings release was distributed.

Thank you.

Alex Xu, our CFO , and Mr. Tien-Yin, our CFO . Before we start, I would like to refer you to our Safe Harbor statement in the earnings price release, which applies to this call as we will make certain forward-looking statements. Also, this call includes discussions of the earnings price and the earnings price.

of certain non-GAAP financial measures. Please refer to our earnings relief, which contains a reconciliation of the non-GAAP measures to GAAP measures.

Also please note that unless otherwise stated all figures were to our CEO Mr.attering please go ahead.

Haisheng Wu: 好，谢谢Karen。大家好，首先感谢大家参加我们这个季度的电话。

Well, here's your card.

Karen Ji: Joining our.

Thank you.

Thank you very much.

Haisheng Wu: 截止到我们2023年一季度末，我们平台成功连接了150家的金融机构，和服务了4600万的累计授信用户。一季度的撮合的放款规模达到1095亿，同比增长10.7%，累计的授信用户同比增长15.6%。在今年这个宏观环境温和复苏的这个背景下，我们应该说是实现了一个超过我们预期的一个增长。我们可以看到今年以来，需求是在逐步地、逐月地、稳步地上升。我们的风险指标也在持续地在改善，整体是向好。

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Karen Ji: By the end of Q1, our platform cumulatively connected approximately 46 million users with approved credit lines and a total of 150 financial institutions. Total loan facilitation and origination volume on our platform reached RMB 109.5 billion, up by 10.7% year-over-year and 4.7% quarter-over-quarter. Cumulated number of users with approved credit lines increased 15.6% year-over-year. The growth was better than our initial expectation against the backdrop of the rate recovery in China's macro economy. Since the beginning of this year, we have seen positive overall trends in our business, including credit demand from users steadily increasing and continuous improvements across multiple risk indicators.

with approved credit lines and a total of 150 financial institutions. Total loan facilitation and origination volume on our platform reached RMB 109.5 billion, up by 10.7% year-over-year and 4.7% total-over-quarter. The related number of users with approved credit lines increased 15.6% year-over-year.

The growth was better than our initial expectation against the back-to-back recovery in China's macro economy. Since the beginning of this year, we have seen positive overall trends in our business, including credit demand from users, steadily increasing and continuous improvements across multiple risk indicators. Thank you for your attention.

Haisheng Wu: 随着我们整体课程的大规模优化的完成，我们的平均定价在一季度继续保持了稳定。风险模型的迭代，我们持续进行。过去的一年里面，我们发布了超过1000个策略的版本迭代，迭代的规则数超过了3万多条。我们的征信模型也在持续地完善。从去年Q3开始，我们将人行的征信大数据模型引入到代工的风险评估中，衍生数据的维度达到2万多条，因此为我们存量用户的价钱提供了风险端的一个很好的保障。由于我们风险识别的精准度的不断提升，从去年到今年4月份，我们守渔的呆妄的逾期率下降了37个BP，30天的回收率上升了189个BP。目前我们的风险水平已经达到甚至超过了我们的既定目标，而且还在持续优化。因此让我们非常有信心，在未来对我们的获客端有很大的弹性的支持。

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Karen Ji: Pricing remained stable during the quarter with our user base having been substantially optimized. At the same time, we continued to upgrade our risk management models, including the release of more than 1,000 version updates and iterations of over 30,000 strategic rules to our credit assessment models over the past 12 months. We also further upgraded our PBOC credit data assessment models. Since Q3 last year, we have started to incorporate PBOC credit data into our ongoing post-credit assessment process on a large scale. With over 20,000 derived data dimensions, we are able to unlock the value of our existing users with enhanced credit assessment capabilities. Supported by our constantly improving ability to accurately identify risks, our day 1 delinquency rate in April 2023 decreased by 37 basis points from December 2022, while our M1 collection rate increased by 189 basis points for the same period.

Pricing remains stable during the quarter with our user base having been substantially optimized. At the same time, we continue to upgrade our risk management models, including the release of more than 1,000 version updates and iteration of over 30,000 strategic rules to our credit assets and the models over the past 12 months.

We also further upgraded our PBOC credit data assessment models. Since Q3 last year, we have started to incorporate PBOC credit data into our ongoing post-credit assessment process on a large scale. With over 20,000 derived data dimensions and streaming techniques, PBOC has over 200,000

we are able to unlock the value of our existing users with enhanced credit assessment capabilities. Supported by our constantly improving ability to accurately identify risks, our day-one delinquency rate in April 2023 decreased by 37 basis points from December 2022, while our M1 production rate decreased by 37 basis points.

Karen Ji: With our risk performance having substantially reached our target, we are more confident in gradually ramping up investments in customer acquisition in the near term.

increased by 189 basis points for the same period. With our risk performance having substantially reached our target, we are more confident in gradually ramping up investments in customer acquisition in the near term.

Haisheng Wu: 从资金的角度来看，一季度涉农的增速是10%，M2的增速是12.7%，所以资产的流动性依然很宽裕。对我们自己来讲的话，我们自己各种金融机构在资金端的分散度进一步提升。资金的成本相比Q4有个进一步的压价，20个BP。从ABS发行来看，我们在助贷合作中所展现的这种良好的风险表现，让我们获取了更多的金融机构合作伙伴对于我们ABS的认同，从而保障了我们ABS的进一步的发行。一季度我们发行了23亿的ABS，发行规模同比增加了77%，远高于消费金融行业资产证券化产品的资产发行的速度。ABS发行的平均成本也进一步降低了17个BP，因此进一步摊薄了我们整体的资金成本。我们预计未来的几个季度里面，资金成本应该会保持平稳，我们也会继续去优化我们机构的合作的结构，来维持我们竞争端的强大的优势。

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Karen Ji: Liquidity in the financial system remained ample during the quarter, with total social financing and M2 money supply increasing by 10% and 12.7% year-over-year respectively. This enabled us to further diversify our funding sources and reduce our funding cost by 30 basis points sequentially. With our solid risk performance in the loan facilitation model, we have obtained more allocations from our financial institution partners for ABS issuance, thereby accelerating our pace of issuance. In Q1, we issued RMB 2.3 billion of ABS, up 77% year-over-year, far outpacing the growth of overall consumer loan ABS issuance in China. Our funding costs associated with ABS issuance also decreased by 17 basis points sequentially, contributing to a further reduction in overall funding costs. Going forward, we will continue to deepen our partnerships with financial institutions and strengthen our competitive edge in terms of funding costs.

with our solid risk performance in the loan facilitation model, we have obtained more allocations from our financial institution partners for ATS issues, thereby accelerating our pace of issues. In Q1, we issued RMB 2.3 billion of ATS, a 77% yield a year.

while outpacing the growth of overall consumer loan ABS insurance in China. Our funding costs associated with ABS insurance also decreased by 17 basis points sequentially, contributing to a further reduction in overall funding costs. Going forward, we will continue to deepen our partnerships with financial institutions and screenshotting our projects in the 20th century.

Karen Ji: We expect overall funding costs to remain generally stable over the next two quarters.

competitive edge in terms of funding costs. We expect overall funding costs to remain generally stable over the next two quarters.

edge in terms of funding costs. We expect overall funding costs to remain generally stable over the next two cultures. Thank you very much.

Haisheng Wu: 在获客方面，一季度我们和哔哩哔哩达成了一些合作协议，成为了他们首批金融科技投放的合作伙伴。同时我们也完成了与多家头部手机厂商的精准投放的这种技术部署。投放的模式升级后，为我们优化应用商店的获客效率提供了很大的帮助。比如说我们在一些应用商店的投放里面，进行这种精准投放，对比传统的付费模式来讲，我们的CPA可以降低20%。另外在接入方面，我们一季度接入了更多的场景，新增的授信用户环比增长是14.5%。我们也在探索一些新型的获客方式。我们短视频的直播也已经开始陆续上线，我们也在一些短视频的平台上开通直播，并举行了首次直播现场。我们看到这个效果还是比我们预期中要好很多很多的。

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Karen Ji: In terms of customer acquisition in Q1, we entered into a cooperation agreement with Bilibili during the quarter, becoming one of its first batch of fintech marketing partners. We also launched precision marketing with the RT model in app stores of major mobile phones. Precision marketing model will help us improve our marketing efficiency on the relevant app store platforms. For example, our customer acquisition cost per credit is 20% lower than it had been under the traditional model. Within our embedded finance business, we connected with additional traffic platforms, which results of new users receiving credit lines. In addition, we have been exploring innovative ways to acquire new customers. The official live streaming account for our 360 digital product was launched on a short-form video platform in April. The marketing effectiveness is better than our expectations.

In terms of customer acquisition in Q1, we entered into a cooperation agreement with B2B during the portrait, becoming one of its first batch of in-tech marketing partners. We also launched precision marketing with the RTE model in the app store of major mobile form.

traffic platforms, which results in new users receiving credit lines. In addition, we have been exploring innovative ways to acquire new customers. The official live streaming account for our 360 data product was launched on a short form of a mobile device.

Haisheng Wu: 在我们存量用户的经营上，我们不断增加对用户的触达覆盖，同时也完善我们的运营策略，提升用户的转化和流程。一季度我们引入企业微信作为我们存量用户的一个触达和运营手段，同时我们也引导客户完成完建动资和一些征信材料的提交。目前我们这种新的渠道覆盖了20多万的存量用户。通过这种企业微信的能力，可以带来非常好的转化效率的提升。同时我们也在积极地开展对用户的这种调研，不断地提高优化用户的体验。我们的流程率这个季度应该说也有很好的提升。

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We further expanded our outreach to existing users and optimized operational strategies to boost user experience.

Karen Ji: We further expanded our outreach to existing users and optimized operational strategies to boost user conversion and retention. In Q1, we introduced Enterprise WeChat as a new channel for engaging with our existing users, which drives user conversion by offering a step-by-step guide through the loan application, drawdown, and submission process. As of today, we have engaged with more than 200,000 existing users. Furthermore, we also improved the user retention by optimizing our product offerings and user experience based on extensive surveys of our existing users.

and existing users. Furthermore, we also improve the user retention by optimizing our product offerings and user experience based on extensive surveys of our existing users. While China is growing worse than bye for now, it is still an apologising industry to share its wallet cos BLACKMdead

Haisheng Wu: 随着经济的逐渐复苏，我们也关注到了有泛小微客群的需求，是率先复苏的。因此我们也在着力建设对于泛小微客群的识别和经营能力。我们通过完善征信、发票，包括有一些商业的流水，一些行业的数据，我们可识别的小微客群占比进一步地提升到了40%以上。接下来我们会选择一些用户来做一些测试。我们想为泛小微客群设计一些差异化的产品，不断地提高我们这种产品的竞争能力。我们相信未来我们对这个客群的这种产品附加值也会有一个很大的提升空间。

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Karen Ji: As the macro economy gradually recovers, we have noticed that demand has been rebounding fast among broadly defined SME borrowers. To cater to this demand, we strategically strengthen our ability to identify and manage the specific segments. We enhance our customer profiling capabilities by improving data dimensions such as credit history, invoice, e-commerce transactions, billing, industry data, which allow us to accurately identify customers within the broadly defined SME segment, which accounts for more than 40% of our current user base. Our next step is to conduct pilot tests on a selected group of users aimed at developing differentiated products and fine-tuning risk management strategies for the broadly defined SME segment, which we believe has the potential to drive meaningful growth for our business in the .

As the macro economy gradually recurrence, we have noticed that demand has been rebounding fast among broadly defined SME borrowers. To cater to this demand, we strategically strengthen our ability to identify and manage the specific segments. We enhance our customer profiling capabilities by improving data dimensions.

such as credit history, invoice, e-commerce transactions, billing, industry data, which allow us to accurately identify customers within the broadly defined SME segment, which accounts for more than 40% of our current user base.

Our next step is to conduct pilot tests on a selected group of users aimed at developing differentiated products and fine-tuning risk management strategies for the broadly defined SME segment, which we believe has the potential to drive meaningful growth for our business industry.

Our next step is to conduct pilot tests on a selected group of users aimed at developing differentiated products and fine-tuning risk management strategies for the broadly defined SME segment, which we believe has the potential to drive meaningful growth for our business industry. Thank you for your attention.

Haisheng Wu: 在金融科技业务方面，这个季度的重点还是放在提升我们的产品力上。我们进一步地丰富了针对机构输出的科技解决方案，支持的产品线从个人信贷款扩展到个体经营贷，还有这些农户贷。基于多元化的部署方式，我们应该可以更好地满足金融机构的各方面的需求。我们也完成了核心技术能力的标准化、产品化，开发出了有18个信贷的子系统，全面地覆盖了从获客到风控，到运营，到账务各个业务环节。并且我们把我们在信贷业务中所积累的这种know-how，也内置到这个系统里面，应该说可以让我们机构合作伙伴在系统的上线初期，就能够享受到行业领先的这种专业的视角和方案。

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Karen Ji: For our technology solution business, our focus in Q1 was on enhancing our product capabilities. Specifically, we extended the scope of our solutions beyond personal consumer loans to include individual business loans. Our diversified deployment method allow us to better serve the unique needs of each financial institutions we work with. So far, we have developed standardized products based on our core technological capabilities, and have created 18 standardized modules covering every aspect of the credit business, including customer acquisition, risk management, operation, and accounting, etc. We also incorporated our extensive credit industry know-how into the modules, which empowers financial institutions expertise and algorithms from the moment they onboard.

For our technology solutions business, our focus in Q1 was on enhancing our product capabilities.

Specifically, we extended the scope of our solutions beyond the personal consumer loans to include individual business loans. Our diversified deployment method allows us to better serve the unique needs of each financial institution we work with.

So far, we have developed standardized products based on our core technological capabilities and created 18 standardized modules covering every aspect of the credit business including a dormitory,

with management, operations, and accounting, etc. We also incorporated our extensive credit industry know-how into the modules, which empowered financial institutions.

and algorithms from the moment they onboard.

expertise and algorithms from the moment they onboard.

Haisheng Wu: 在过去的一段时间里面，ChatGPT的出现正在很大地影响着各行各业。对于我们来讲，我们也相信这种生成式的AI在金融领域有非常多天然的应用场景。比如在各种对话机器人，智能客服、电销、催收等环节，应该说可以比过去的技术更好地理解用户的情绪，生成更好更自然的这种个性化的对话。另外就是在风控的环节，这种技术也可以更准确地去帮助我们提炼征信报告的这种信息，生成衍生的变量，用来提高我们的这种风险识别模型。今年我们在内部，我们公司也成立了这种一级的部门，叫大模型部。我们致力于让这个部门去开发各种深度学习方法，生成式的这个人工智能技术，在金融科技领域的这种产品化的应用。同时呢，我们在内部也发布了ChatGPT的一些版本。我们在目前，在催收，在电销，客服这些环节里面，我们进行一些语义的这种分析和训练。通过这个GPT分析用户的意图，并且能够标签化。我们应该说可以看到不同的标签的用户，在催收、电销、客服这些效果方面还是有着一个明显的差异的。我们通过这种技术，提升用户体验，提高公司的经营效率。同时我们也认为，这种技术未来对我们这种金科业务所服务的金融机构，应该有一个非常好的这种赋能。我们也与客户做了一些调研沟通，客户们对这种产品的期待是非常之高的。

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and the industry is also very excited about this. We are very excited about this. Thank you. Over the past months, CHA-DPT has been having significant impact on various industries

Karen Ji: Over the past few months, ChatGPT has been having significant impact on various industries since its release. We believe that generative AI technology has many natural, for example, in areas such as intelligent customer service, telemarketing, and loan collection, ChatGPT can better understand user emotions and facilitate natural, smooth, and personalized interaction with users. In risk management, it can derive useful information from credit reports and identify relevant factors for our risk management models. In April, we established a Large Language Model Department. This new strategic division is dedicated to developing various deep learning algorithms and generative AI technologies, specifically for applications in the financial sector. We have already launched the first version of GPT for internal use, which is designed to perform semantic analysis in our loan collection and telemarketing process.

We believe that generative AI technology has many natural aspects. For example, in areas such as intelligent customer service, telemarketing, and loan collection, Chia CPT can better understand user emotions and facilitate natural, smooth, and personalized interaction with users. In risk management, it can derive useful information from credit reports and identify relevant low- saving introducements that impact the user's ability to Eminence and

factors for our risk management models. In April , we established a large language model department. This new strategic division is dedicated to developing various deep learning algorithms and generative AI technologies specifically for applications in the financial sector.

We have already launched the first version of GPT for internal use, which is designed to perform semantic analysis in our loan collection and telemarketing process.

Karen Ji: Through GPT analysis of user intention and labeling, we can see that the users of different labels have clear variations in the effectiveness of collection and telemarketing. Apart from applying AIGC to enhance the user experience and our operational efficiency, we also plan to gradually export such capabilities to our financial partners.

Through GPT analysis of user intention and labeling, we can see that the users of different labels have clear variations in the effectiveness of correction and telemarketing. Apart from applying AI-GC to enhance the user experience and our operational efficiency.

We also plan to gradually export such capabilities to our financial partners.

Haisheng Wu: 从监管方面，我们的断直连的整改在Q1应该是稳步推进。我们已经按照申报给监管部门的方案，基本上完成了断直连的改造，目前已经上线，系统已经在平稳有序地运行。相信今年在促进经济发展的总体监管速度下，行业会在非常平稳有序的监管环境下有一个健康的发展。

On the regulatory front, we continue to make steady progress in dealing compliance with the Breakdown Report.

Karen Ji: On the regulatory front, we continue to make steady progress in gaining compliance with 断直连 credit agency reform in Q1. We have substantially completed the required integration of systems with our financial partners according to the plan we submitted to the regulator. So far, our loan facilitation progress through the Zhilian model has been very smooth. Given the current regulatory focus on promoting economic development, we believe the industry will be able to deliver healthy growth in a stable regulatory environment.

promoting economic development, we believe the industry will be able to deliver healthy growth in a stable regulatory environment.

Haisheng Wu: 我们展望一下今年未来几个季度。虽然现在还处在经济复苏的早期阶段，但是复苏的趋势是确定的。我们也相信今年会是宏观环境逐步改善的一年，我们也有信心把握住这种复苏的节奏，高质量地完成我们的目标。

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Karen Ji: Looking ahead, while the economic recovery is still in its early stage, but the trend for recovery is clear. We believe that the macro economy environment will gradually improve throughout the remainder of the year. We are also confident in our ability to capitalize on the recovery momentum and deliver on our goals effectively.

Working ahead, while the economic recovery is due in its early stage, but the trend for recovery is clear. We believe that the macroeconomic environment will gradually improve throughout the next

Haisheng Wu: 最后跟大家分享一个消息。我们刚刚通过了提高我们为股东分红比例的一项董事会。这说明我们在追求一个高质量的业绩增长的同时，我们也一直很重视倾听市场的声音，希望能够持续地去回馈股东，与股东们分享公司增长的一个收益，更好地维护我们公司的价值。一会儿我们CFO Alex应该会跟大家去分享我们的分红的政策。那下面就请我们的Alex给大家分享一些财务方面的一些事情。

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Therefore, Alex and I will continue to discuss the importance of the digital asset management. Finally, I have some news to share with you all. All the directors have just passed a resolution to increase our dividend payout ratio. As we continue to drive quality growth and create share with value.

Karen Ji: Finally, I have some news to share with you all. Our board of directors has just passed a resolution to increase our dividend payout ratio. As we continue to drive quality growth and create shareholder value, it is also important to listen to the market and share the benefit growth within our shareholders. We believe this will enable us to enhance the value of our company. Alex will share more about this later. With that, I will now turn the call over to our CFO, Alex, who will walk you through with our financial results for the quarter.

it is also important to listen to the market and share the benefits within our shareholders. We believe this will enable us to enhance the value of our company. Alex will share more about this later. With that, I will now turn the call over to our CFO Alex, who will do what our financial results for the quarter. Thanks, Zhaohao Zhang. Good morning and good evening. Welcome to our first session.

Alex Xu: Thanks to Haisheng. Good morning and good evening. Welcome to our Q1 earnings call. Q1 set a positive tone for the recovery year. The improvement in many aspects of our operations. User activity levels continue to improve in recent months, aside from normal seasonality. Although we still want to call the recovery a modest one, things are indeed trending a little bit better than we initially thought. As Haisheng discussed earlier, with micro conditions improving throughout 2023, we intend to focus on effort and deploy our resources to drive back to growth while maintaining desirable asset quality. In Q1, target high quality and lower risk user base and drive further improvement in risk performance. Key leading indicators, day one delinquency has been on a steady declining trend in recent quarters. It was 4.1% in Q1 versus 4.3% in Q4, and further declined to approximately 4% in April.

a little bit better than we initially thought. As I discussed earlier, with micro-conditions improving throughout 2023, we intend to focus on effort and deploy our resources to drive vector growth while maintaining desirable asset quality. In Q1, we target high-quality and low-risk user base.

and drive further improvement in risk performance. Key limiting indicators in day one delinquency has been under the steady declining trend in recent quarters. It was 4.1% in Q1 versus 4.3% in Q4, and further declined to approximately 4% in April . The continuing improvement in day one delinquency has been under the steady declining trend in recent quarters.

Alex Xu: The continuing improvement in day one delinquency mainly reflect the micro improvement as well as further optimization of our algorithm. 30-day collection rate was 86.2% in Q1 versus 84.7% in Q4. This sharp rebound from the COVID-disrupted Q4 mainly reflect back to normal collection operations. As economic recovery continues, we see further improvement in these metrics. By late April, 30-day collection rate already at near 87%. Total net revenue for Q1 was RMB 3.6 billion, versus RMB 3.9 billion in Q4, and RMB 4.3 billion a year ago. Revenue from platform service company was RMB 2.6 billion in Q1, compared to RMB 4.8 billion in Q4 and RMB 4.9 billion a year ago. The year-on-year and sequential decline was mainly due to overall decline in expected average tenure of the new loans, as well as further adjustment to existing loans' expected tenure.

mainly reflect the micro improvement, as well as further optimization of our algorithm. 30-day collection rate was 86.2% Q1 versus 84.7% in Q4. This sharp rebound from the COVID-disrupted Q4 mainly reflected back to normal collection operations.

As economic recovery continues, we see further improvement in these metrics. By late April , 30-day collection rate already at near 87%. Total net revenue for Q1 was $3.6 billion versus $3.9 billion in Q4 and $4.3 billion a year.

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Alex Xu: During the quarter, we see increased service-driven identity of our borrowers, like 90% of active borrowers still despite our Chinese New Year, spillover effect from mortgage early repayment momentum, and oversupply of liquidity at the beginning of the year. Looking ahead, we expect early repayment level to stabilize in Q2 as above-mentioned matters or factors gradually easing. On-balance sheet loans continue to grow at a faster pace and account for nearly 20% of the total loan volume, as we continue to drive for better utilization of our capital as well as our micro-lending license. Revenue from platform service, Capital-Light, was RMB 969 million in Q1, compared to RMB 1.1 billion in Q4, and RMB 1.4 billion a year ago. The year-on-year and sequential decline was also mainly due to overall decline in expected average tenure of new loans, as well as further adjustment to existing loans' expected tenure.

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Looking ahead, we expect early repayment level to stabilize in Q2 as above mentioned matters or factors gradually easing. On balance sheet loan continue to grow at a faster pace and account for nearly 20% of the total loan volume. We continue to drive for better utilization of our capital as well as our microlending license.

Revenue from platform service capital light was $969 million in Q1 compared to $1.1 billion in Q4 and $1.4 billion a year ago. The year-on-year and sequential decline was also mainly due to overall decline in expected average container of the new loans.

Alex Xu: For Q1, Capital-Light loan facilitation, ICE, and other technology solution combined account for roughly 56% of the total loan volume, roughly flat versus the prior quarter. We expect the risk ratio to be relatively stable throughout this year. In the long run, we'll continue to pursue tech-driven business model while seeking a balance among various forms of non-risk-bearing solutions based on microenvironments and operational conditions. During the quarter, average IRR prices of loans we originated and/or facilitated remained stable Q-on-Q, well within the regulatory rate cap requirement. Looking forward, we expect pricing to be relatively stable for the coming quarters. Sales and marketing expenses increased marginally Q-on-Q, as recovery in our user activity was offset by seasonal impact of Chinese New Year. We added approximately 1.5 million new credit line users in Q1, flat versus Q4. User cost to acquire a new credit line user also increased marginally.

as well as further adjustment to existing loans expected tenure. For Q1, Cap-Life loan facilitation, ICE, and other technology solutions combined account for roughly 56% of the total loan volume, roughly flat versus the prior quarter. We expect the risk of the initial will be relatively stable throughout this year.

In the long run, we'll continue to pursue tech-driven business model while seeking a balance among various forms of non-risk-bearing solutions based on microenvironments and operational conditions.

During the quarter, average IRR prices of loans we originated and or facilitated remain stable Q on Q, well within the regulatory rate cap requirement.

Looking forward, we expect pricing to be relatively stable for the coming quarters. Sales and marketing expenses increased marginally Q1Q, as recovery in our user activity was offset by seasonal impact of Chinese New Year. We added approximately 1.5 million new credit line users to our new credit line.

Alex Xu: While we will continue to drive for efficiency in our operation, we may adjust the pace of new user acquisition as economic recovery continues throughout 2023. Meanwhile, we'll continue to focus on re-energizing existing user base, as repeat borrowers historically contribute vast majority of our growth. Although we will continue to take prudent approach to book provision against potential credit loss, we should expect increasing write-backs from provisions from prior periods as overall risk profile of our loan portfolio gradually improve along with micro conditions. Total new provisions for risk-bearing loans in Q1 was approximately RMB 1.7 billion. The write-backs of the previous provisions were approximately RMB 411 million. Provision coverage ratio, which is defined as total outstanding provision divided by total outstanding delinquent loan balance between 90 and 180 days, were 432% in Q1, compared to 456% in Q4.

throughout 2023. Meanwhile, we'll continue to focus on re-energizing existing user base, as repeat borrowers historically contribute vast majority of our growth.

Although we will continue to take prudent approach to book provision against potential credit loss, we should expect increasing write-backs from prior periods as overall risk profile of our loan portfolio gradually improves along with micro-conditions. Several new provisions for risk-bearing loans in Q1 was approximately 1.5% of the total

Alex Xu: With solid operating results and stable contribution from Capital-Light model, our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was at a historical low of 3.4 times in Q1, compared to 4.2 times a year ago. A rather stable leverage ratio for the time being until non-risk-bearing contribution resume growth in the future. We generate approximately RMB 1.8 billion cash from operation in Q1, roughly flat Q-on-Q. Total cash and cash equivalent was RMB 9 billion in Q1, compared to RMB 10.9 billion in Q4. Non-restricted cash was approximately RMB 5.1 billion in Q1, compared to RMB 7.2 billion in Q4. The sequential decline in cash position was mainly due to increased cash usage in our balance sheet lending. As we discussed earlier, with economic condition improving, we may look for opportunities to deploy resources to launch new initiatives and develop new technologies and expand our service offerings.

432% in Q1 compared to 456.

percent in Q4. We saw the operating results and stable contribution from capture-like model. Our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was at a historical low of 3.4 times in Q1 compared to 4.2 times a year ago.

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We generate approximately 1.8 billion cash from operation in Q1, roughly flat Q on Q. Total cash and cash equivalent was $9 billion in Q1, compared to $10.9 billion in Q4. Non-restricted cash was approximately $5.1 billion in Q1.

compared to 7.2 billion in Q4. The sequential decline in cash position was mainly due to increased cash usage in our balance and lending. As we discussed earlier, with economic condition improving, we may look for opportunities to deploy resources to launch new initiatives and develop new technologies.

Alex Xu: Non-GAAP net profit was RMB 976 million in Q1 compared to RMB 919 million in Q4. As we continue to generate healthy cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders. Since Q3 of 2021, we have paid out a total of RMB 1.34 billion cash dividends to our shareholder in six consecutive quarters. To generate high returns to our investors and solidify and expand our long-term investor base, the company's board of directors approved a new dividend plan yesterday. The new plan increased our dividend payout ratio to 20% to 30% from previous 15% to 20% of net profit. Also, to reduce the transaction cost for our shareholders, the new plan approves a semiannual dividend distribution schedule to replace the quarterly dividend schedule of the old plan.

our service offerings. non-GAAP net profit was $976 million in Q1, compared to $919 million in Q4. As we continue to generate healthy health cash flow from operations, we believe our current cash position is sufficient.

to support our business development, and to return to our shareholders. Since Q3 of 2021, we have paid out a total of 1.34 billion cash dividends to our shareholder in six consecutive quarters. To generate high returns to our investors and to solidify and expand our long-term investor base, the company's board of directors has already fluffyed its liquidityput scoop to gauge a market Bab

approved a new dividend plan yesterday. The new plan increased our dividend payout ratio to 20% to 30% from previous 15% to 20% of net profit. Also, to reduce the transaction cost for our shareholders, the new plan approves a semiannual dividend distribution schedule to replace the quarterly dividend schedule of the old plan. The first semiannual dividend payout will be declared in our Q2 earnings release. Finally, regarding our outlook for 2023,

Alex Xu: The first semiannual dividend payout will be declared in our Q2 earnings release. Finally, regarding our outlook for 2023. While we start to see a gradual recovery of microeconomy and our business activities are also trending a bit better than previously thought, it may still take extra time for consumers' confidence and behavior return to normal. At this junction, we still see a modest recovery in consumer credit demand, with growth rate potentially accelerating throughout the year. As such, we would like to maintain our full year total loan volume target for 2023 at between RMB 455 and 495 billion, representing year-on-year growth of 10% to 20%. As always, this forecast reflects the company's current and the preliminary view, which is subject to material changes. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

Well, we start to see a gradual recovery of micro economy and our business activities are also trending a bit better than previously thought. It may still take extra time for consumers confidence and behavior return to normal. At this junction, we still see a modest recovery in consumer credit demand with growth rate potentially accelerating throughout the year.

As such, we would like to maintain our full-year total loan volume target for 2023 at between RMB $455 billion and RMB $495 billion.

representing year-on-year growth of 10 to 20 percent. As always, this work has to reflect the company's current and the preliminary view, which is subject to material change.

Operator: Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star one again. For those who can speak Chinese, kindly ask your question in Chinese first, followed by English translation. In order to have enough time to address everyone on the call, please keep it to one question and one follow-up and return to the queue if you have more questions. Once again, that's star one for questions. Our first question comes from the line of Frank Zheng from Credit Suisse. Please ask your question, Frank.

With that, I would like to conclude our prepared remarks. Operator, we can now take some questions. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and right for your name to be announced. To withdraw your question, please press star 1-1 again.

For those who can speak Chinese kindly ask your question in Chinese first, followed by English translation. In addition, in order to have enough time to address everyone on the call, please keep it to one question and one follow up and return to the queue if you have more questions. Once again, that's Star 11 for questions.

Our first question comes from the line of Frank Chen from Credit Suisse. Please ask your question, Frank. Hello, everyone. I'm Frank Chen from Credit Suisse. I'm a student at the University of Toronto.

Zheng Hao: 非常感谢管理层给我提问的机会。我是瑞信的郑豪。我很快有两个问题。第一个问题是关于今年接下来这段时间一个运营上策略的一个重点，比如说会有更加激进的一个新客的获取，或者是对老客的一个进一步优化，包括提额等的一些措施，亦或者是一个在客户质量或者客户群体的一个进一步的提升。可否请管理层简单地进一步介绍一下？那第二个问题是关于今年的运营成本的。在运营成本上，不知道公司有没有采取一些措施去进一步地提高我们的运营效率。那我来翻译一下。Thank you management for taking my questions. This is Frank from Credit Suisse. I have two questions. The first one is on the strategic focus for the rest of the year. Could the management provide more color on measures, for instance, more aggressive client acquisition, optimization on existing clients, and potentially further upgrade in client segments?

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Thank you, management, for taking my questions. This is Frank from Credence Swiss. I have two questions. The first one is on the strategic focus for the rest of the year. Could the management provide more color on measures, for instance, more aggressive client acquisition, optimization on existing clients?

Zheng Hao: Second question is on operating expenses. What are some of the measures the company is taking to be operationally more efficient? Thank you.

and potentially further upgrade in client segments. And second question is on operating expenses. What are some of the measures the company is taking to be operating more efficiently? Thank you.

Haisheng Wu: 好，谢谢Frank。我来回答一下第一个问题，然后运营成本那个一会儿Alex你准备。然后关于这个客户端，我们认为在今年来讲的话，新客和这个存量客户应该说都是我们非常重点的工作。在新客方面，我们的工作会在几个方面。第一是我们会继续提高我们对于渠道的覆盖面和对渠道的合作的深度。我们看到这里有很多的工作可以做。我们今年在视频的直播和应用商店的RTA的投放上继续做了很多的创新，那效果也比预期的要好。第二个，我们是通过模型的识别，提高了我们对用户的这个众志意愿的识别，从而能够更加精准地优化我们的offer，提高用户的使用率。那使用率提高了，我们的平均的LTV也会得到提高，新客的获客的竞争力就会变得更大。这是新客方面。Iris，要不你先翻译一下。

Thanks Frank. Just wondering what this means. We have still a lot of Jin Oh being with Alex, as you can see in the video.

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Karen Ji: 好 的. Thanks Frank. I will answer your first questions and I will pass the second question to Alex. First about the

Thanks, Frank. I will answer your first question and I will pass the second question to Alex.

Sorry, I will need to find you. But the. Thanks Frank and I will ask you answer your 1st questions and I'll pass the 2nd question to Alex. 1st, about the. Sorry.

Karen Ji: Sorry. For this year, we will say the new customer and existing customer are equally important trends. In terms of the new customer acquisition, our efforts will be focused on two aspects. First, we will continue to expand our partnership with different channels, and increase the depth of the partnership. For example, we have been trying the live streaming on some short-form video platforms, and we innovatively utilize the RTA model into our app store marketing. The result is better than our initial expectation. The second part, we use the RTA model to increase our recognition about the users' willingness to borrow. We can optimize our offer and increase our users' conversion ratio. Therefore, we can increase the LTV of our users. We will increase our competitiveness in terms of customer acquisition. This is about the new customer acquisition part.

For this year, we want to say the new customer and existing customers are equally important to us. So, in terms of the new customer acquisition, our efforts will be focused on two aspects. First, we will continue to expand our partnership with different channels and increase the depth of the partnership.

For example, we have been planning the live streaming on some short form video platforms and we innovatively utilized the RTE model into our App Store marketing. The result is better than our initial expectation. In the second part, we used the RTE model to increase the performance of our app.

our recognition about the users' willingness to borrow. So we can optimize our offer and increase our users' conversion ratio. Therefore, we can increase the LTV of our users. So we will increase our competitiveness in terms of customer acquisition.

Haisheng Wu: 对于老客来讲，我们的老客的规模是非常巨大的。这里的工作一方面是要去提高对客触达的效率。比如我们现在开始尝试通过企业微信与用户互动，增强了我们的触达效率。另一方面就是我们做模型和算法，进一步地去识别不同客群的画像，针对性地去提供不同的offer。比如我们对泛小微客群的进一步地提升到了40%，这也会为我们后面对这个客群的offer的优化和用户的留存提供了很好的基础。

This is about the new customer acquisition part.

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Karen Ji: Regarding our existing users, actually we have a very significant user base of our existing users. It's very important for us to increase efforts on existing users to improve the conversion effectiveness. For example, we have tried to use Enterprise WeChat to cover our existing users to increase effectiveness for us to outreach our existing users. We refine our risk management models to better understand our users and identify different profile of our users. For example, for 40%. Later we can optimize our offer and improve our user engagement process to better engage the existing users to improve their long term value.

Regarding our existing users, actually we have a very significant user base of our existing users. So it's very important for our press to increase efforts on existing users to improve the conversion effectiveness. For example, we have tried to use a lot of our existing users to increase the conversion

enterprise WeChat to cover our existing users to increase effectiveness for us to outreach our existing users. And we refine our risk management models to better understand our users and identify different profiles of our users. For example, wood.

apps for Saud did you like?

So later we can optimize our offer and improve our user engagement process to better engage the existing users to improve their long-term value.

Haisheng Wu: 总的来说，在客群上，我们认为在现在需求温和复苏的背景下，我们应该把更多的精力放在效率上，放在内功上，提高我们的这种获客的准确率，也来创新更多的这种渠道的覆盖面。从目前我们看到的和this new来看，我们已经做到了一个非常领先的进步。如果后面市场需求进一步地复苏，我们将会有非常好的机会去进一步地扩大我们的客户规模。

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Karen Ji: At this point, under the moderate macroeconomy recovery environment, we believe it's very important for us to increase our efficiency at this stage. We will increase our coverage in terms of the channel and partnerships, so we can better improve our marketing efficiency. We are actually enjoy the competitiveness in terms of this part, and we believe we will further increase our user base when the macro further improves.

So at this point into the moderate macroeconomy recovery environment, we believe it's very important for us to increase our efficiency at this stage. So we will increase our coverage in terms of the channel and the partnership.

so we can better improve our marketing efficiency. So we are actually enjoying the competitive in terms of these parts. And we believe we will further increase our user base when do a macro fitting.

so we can better improve our marketing efficiency. So we are actually enjoying the competitive in terms of these parts. And we believe we will further increase our user base when doing macro sitng therapy

Haisheng Wu: 好，那关于运营成本的，请Alex介绍一下。

Alex Xu: Okay. Hi, Frank. Basically for the operating expenses trend going forward, there are a few aspects. One, some of the operating expenses are variable costs. For example, the one we use to get credit scores cost and the one we do the transaction or sending the message via SMS. Those variable costs, we have a long-term relationship with those suppliers. Every year you can always squeeze a little bit from the cost base on a unit basis, the room for that is not really that much. The other big part of the variable cost is really customer acquisition. I think we had this kind of discussion earlier or before.

Okay, hi Frank. So basically for the operating expenses trend going forward, there are a few aspects. One, some of the operating expenses are variable cost. For example, the one we use to get credit scores cost and the one we do the transaction or sending the message for at the mass.

Those variable costs, we have a long-term relationship with those suppliers. And every year you can always squeeze a little bit from the cost base on a unit basis. But the room for that is not really that much. And then the other big part of the variable cost is really customer acquisition.

Alex Xu: Last year, our unit or per credit line users customer acquisition cost was about RMB 370 or RMB 360 per user. This year, we intend to lower that unit cost number to somewhere around RMB 330. The Q1 was only about RMB 280, less than RMB 290. The following quarters, with the increased pace of customer acquisition, you may see some increase in sales marketing spending, but overall, on a full year basis, we will see a lowered unit cost for per credit and users acquisition cost. Other back office related fixed cost, we have a pretty tight internal control, including headcounts and also the IT spendings there. Thank you.

I think we had this kind of discussion earlier or before. Last year our unit or per credit line users customer acquisition cost was about 370 or 360 RMB per user. This year we intend to lower that unit cost number.

see some increase in sales marketing spending. But overall, on a four-year basis, we will see a lowered unit cost for per credit end users acquisition cost. Other back office-related fixed cost, we have a pretty tight internal control, including headcounts and also the IT spending there.

increase in sales marketing spending. But overall, on a four-year basis, we will see a lowered unit cost per credit and user's acquisition cost. Other back office-related fixed costs, we have a pretty tight internal control, including HEPP accounts and also the IT spending there. Thank you.

Operator: Right. Thank you. Our next question comes from the line of Alex Ye from UBS. Please ask your question, Alex.

Right, thank you. Our next question comes from the line of Alex Ye from UBS. Please ask your question, Alex.

Alex Ye: My question is mainly on the loan pricing outlook. Firstly, in terms of the competitive landscape, we have seen the overall consumption recovery and consumer credit data has been quite modest in April. Could you share some color in terms of what's the current trend you have seen regarding the competitive pressure from different players? Secondly, would you consider lowering your loan pricing in order to stimulate some loan draw down demand from your existing customer base? Thank you.

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different players and secondly would you would you consider lowering your loan pricing in order to stimulate some long drawdown demand from your existing customer base thank you okay

Secondly, would you consider lowering your loan pricing in order to stimulate some loan drawdown demand from your existing customer base? Thank you. Okay. Okay, Alex. Thank you for your hand Boo Nightie. Yep. Okay, thank you Alex.

Karen Ji: OK。

Karen Ji: Thanks, Alex. From the competition perspective, we think for our industry, the recovery of the credit demand is more important for the competition. The impact from the recovery of user demand is more important from the impact of the competition. On the other hand, we believe the segmentation of this industry is very clear at this stage. We are actually quite differentiated from the large banks and also the smaller players. We targeting different target customers and the pricing segments.

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Thanks, Alex. From the competition perspective, we think for our industry, the recovery of the credit amount is more important for the competition. The impact from the recovery of user demand is more important from the impact of the competition.

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On the other hand, we believe the segmentation of this industry is very clear at this stage. We are actually quite differentiated from the large banks and also the smaller players.

Karen Ji: There is limited overlapping among the competitors. On the other hand, for our service capability, we think we can have a wide coverage of different kind of users. We can cover the lower pricing users and also the higher pricing users. We can further refine our risk management models to provide differentiated products and offerings to better serve our users. Theoretically, as long as our model is accurate enough, we can have very strong competitiveness.

For our service capabilities, we think we can have a wide coverage of different kinds of users.

We can cover the lower pricing users and also the higher pricing users. So we can further refine our risk management models to provide differentiated products and offerings to better serve our users. So theoretically, as long as our model is...

accurate enough, we can have very strong competitiveness.

enough we can have very strong competitiveness.

Haisheng Wu: 从定价角度呢，我们其实长期以来一直是在使用降价这个工具的，我们对不同的客群会使用一些降价工具。那这个会是一个基于模型识别以后的，只要模型足够的精准，整体上这些降价的客群属于是一个增量的交易，因此它也会产生一个增量的收益。从定价的整体趋势上呢，我们认为我们的平均应该还是会保持一个相对的平稳的一个定价。

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Actually, we can try some reduced pricing to better activate and engage some of our users.

Karen Ji: Pricing perspective, actually we can try to reduce the pricing to better activate and engage some of our users. As long as our model is accurate enough, we can better serve them and add increased value from this sort of strategy. From the overall pricing perspective, we think the future pricing will maintain a stable level compared to the current level.

As long as our model is accurate enough, we can. A better system and the increase of.

at increased value from this sort of strategy. So from the overall pricing perspective, we think the future pricing will maintain at current level, will maintain a stable level compared to the current level.

Haisheng Wu: Alex，我的回答就是这些。有没有回答你？

Operator: All right. Thank you. Our next question comes from the line of Richard Xu from Morgan Stanley. Please go ahead, Richard.

Richard Xu: 好的，感谢。我就想请问一下这个需求。不知道我们最近看到环比来看，从借款的需求有哪些变化？我们现在看确实消费复苏也是分化比较明显的。从我们这个数据来看，有没有这个区域间或者不同人群间，对这个贷款需求的一个变化，或者收入不同之间的变化。资产质量是否也有不同的分化？So essentially my question is on the loan demands, particularly on the sequential change from the potential borrowers in recent months, on any divergent trends among the different region groups of borrowers in terms of loan demand, income growth, and credit quality. Thank you.

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Haisheng Wu: 好的。谢谢。我们确实也看到了这个分化。所以我们认为会有两个特征，一个是叫温和复苏，一个是叫差异化的复苏。这个差异化确实会有这几个方面的表现。从区域上来看，江苏、山东、河北、上海这些区域相对复苏会比较快一些。这个和国家公布的一季度各个地区人民币贷款的增量相对还是比较一致的。那从客群的差异化来看，我们看到质量比较好的客群恢复的速度会更快一些，额度的需求也会更大一些。另外从客群来看的话，泛小微这个客群的需求复苏相对也会快一些，其中主要是像服务业这种，它的需求复苏会比较明显。

Thank you.

Okay.

We would like to introduce a special guest. She is from community colleges and she is one of the hosts in our industry, but has a pa creature. Let's see her in a case interview. Let me if this is Brother PA. Next, HUN. linear

And we're interested in your candela to get to go to your phone. We know when we will be up here with you. You go to go to go one course as well. You go to go to get how you want to see the type on a physical your family. In front she had her.

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First of all I would like to thank Professor Wang for his particularly interesting business. Everyone like this, thanks for watching. And finally I would like to thank Professor Wang for her amazing and interesting questions. Thank you very much.

Karen Ji: In terms of credit demand recovery, we have seen two trends. One is moderate recovery, the other is divergent recovery. In terms of the divergent recovery, we look at this problem in several aspects. From region perspective, Jiangsu, Shandong, Shanghai, Hebei, those regions are recovering faster than other regions, which is in line with the incremental social financing by regions published by the government in Q1. From customer segment perspective, we have seen higher quality users recovering relatively faster with increasing credit size. On the other hand, we have seen the broadly defined SME group recovering relatively faster, especially from the service industries. Thank you.

In terms of credit demand recovery, we have seen two trends. One is moderate recovery. The other is divergent recovery. So in terms of the diversified recovery, we look at this problem in several aspects. From a regional perspective, Jiangsu, Shenzhen, Shanghai, Hebei, those regions are recovering faster than other regions.

which is in line with the incremental social financing by regions published by the government in Q1. From customer segment perspective, we have seen higher quality users recovering relatively faster with increasing credit size.

On the other hand, we have seen the broadly defined SME groups recovering relatively faster, especially from the service industries. Thank you. Right. Thank you. We have reached the end of the question and answer session.

Operator: Right. Thank you. We have reached the end of the question and answer session. Thank you very much for all your questions. I will now turn the conference back to the management team for closing remarks.

Haisheng Wu: Okay. Thank you. Thank you for everyone to join us. If you have additional questions, we can discuss offline. Thank you. Have a good day. Bye bye.

Thank you very much for all your questions. I'll now turn the conference back to the management team for closing remarks. OK, thank you. Thanks for everyone to join us. If you have additional questions, we can discuss offline. Thank you. Have a good day. Bye bye.

Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

This concludes today's conference call. Thank you for participating. You may now disconnect.