Q2 2024 X Financial Earnings Call

August 22, 2024

Unknown Executive: To ask a question, you may first start in one on your telephone keypad.

Unknown Executive: To enjoy your question, please press start in two.

Unknown Executive: Please note, today's event is being recorded.

Victoria Yu: I would now like to turn the conference over to Victoria Yu. Please go ahead.

Victoria Yu: Thank you, operator. Hello, everyone. And thank you for joining us today. The conference results were released early today and are available on the company's AR website at ire.showinggroup.com.

Unknown Executive: On the call today from exponential, our Mr. Kan Li is privateant.

Victoria Yu: And Mr. Fuya Zheng, chief financial officer. Mr. Li will give a brief overview of the company's business operations and highlights. Followed by Mr. Zheng, who will go through the financials. They are all available to answer on questions during the Q&A session.

Unknown Executive: I would like to remind you that this company contains all our looking statements and their the safe harbor provisions of the private securities litigation reform act of 1995. Such statements are based on management, carbon expectations, and carbon market and operating conditions. And relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict. And many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to defer materially from those in the follow-up looking statements.

Unknown Executive: For the information regarding lease and other facts risks, uncertainties and factors is included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any follow-up looking statement as a result of new information, future events, or otherwise, except as required in the law.

Victoria Yu: It is now my pleasure to introduce Mr. Kang Li. Mr. Li, please go ahead.

Kan Li: Hello everyone. We are very pleased to report another solid quarter as we made a further progress in improving our profitability. Our proactive management of non-volume based on asset quality dynamics continue to bear fruit in the second quarter. As a result, while non-volume decline in the year over year are net income for the quarter group significantly and reach the record high. The total non-volume amount facilitated and originated decreased by 12% year over year, but increased 6% sequentially to RMB 23 billion.

Kan Li: Our total outstanding non-violence was RMB 42 billion as end of June 2024. The link consideration for outstanding non-volume passed through for 31 to 60 days and the 91 to 180 days were 1.29% and the 4.38% respectively as end of the quarter. Compared to 1.61% and the 4.37% or quarter ago and the 0.96% and the 2.5% a year ago. As we have seen an improvement in our asset quality, we have decided to ease our strict controls on non-volumes and we expect our non-volumes to gradually recover on a year over a year basis in the second half of the year.

Kan Li: Meanwhile, we will continue to strengthen and refine our risk management system to improve asset quality. Our focus remains on sustainable profitability and we employ flexible tactics to adapt to evolving market conditions to achieve this and, as always, to increase shareholder value.

Fuya Zheng: Now, I will go to Frank, who will go through our financials. Thank you, Ken, and hello, everyone.

Fuya Zheng: We deliver the strong financial results this quarter. The total net revenue was RMB 1.4 billion, up 12.5% year-on-year and 14% sequentially. We continued to focus on cost control and the improved asset quality and as a result, our net income grew 13% year-on-year and 14% sequentially to RMB 415 million. A record high in our history.

Fuya Zheng: In May 2024, we announced a new 20 million year repurchase program in June 2024. We initiated a 10th offer to purchase 2 million ADS, which was a complete in June July 2024. We are pleased to have asked you this ADS buyback, which provided liquidity to shareholders seeking an asset and a premium price at the same time increased remaining shareholders' stakes in the company.

Fuya Zheng: We are committed to profitable growth by exploring various avenues to further increase returns for our shareholders. Now, I would like to brief some financial performance for you to please note that all numbers stated here in INB and around total net revenue increased by 12% to INB 1,373 million from INB 1,220 million in the same period of 2023. PAMERA due to growth in various aggregated revenue items compared with the same period of 2023. Please refer to the analysis of this aggregate completion of the revenue.

Fuya Zheng: Origination and service expenses increased by 19% to INB 413 million from INB 349 million in the same period of 2023. PAMERA due to the increase in collection expenses resulting from the accumulated effect of the increased volume of loans facilitated and provided in the period's quarters compared with the same period of 2023. All acquisitions and the marketing expenses increased by 3% to INB 324 million from INB 332 million in the same period of 2023.

Fuya Zheng: Position for loans the same period was INB 96 million compared with INB 55 million in the same period of 2023. PAMERA due to an increase in loans of the same period held by the company as a result of the cumulative effect of the increased volume of loans facilitated and provided in the period's quarters compared with the same period of 2023.

Fuya Zheng: Income from Operations was I.B. 463 million compared with I.B. 445 million in the same period of 2023. Next income was I.B. 450 million compared with I.B. 366 million in the same period of 2023. Now in gap are just net income was I.B. 375 million compared with I.B. 365 million in the same period of 2023.

Fuya Zheng: From further financial information, please refer to the third release on our website.

Fuya Zheng: With respect to our dividends, we provide a very annual dividend policy in March. For some of this policy, our border has also lies the declaration and payment of the semi-annuit dividend of US 17 cents per ADS for the first half of 2024. For specific given payment dates and instructions, please refer to our learning release.

Fuya Zheng: Now our business outlook. For Q3 this year, we expect the total loan amount facilitated and originated to be between I.B. 26 million and I.B. 27.5 billion.

Unknown Executive: If you would like to ask a question, please press star in the 1 on your telephone keypad. If you are using a speaker phone, we ask you please pick up your handset before pressing the keys.

Unknown Executive: To withdraw your question, please press star in 2. Once again, that star is in 1 if you have a question.

Mason Bourne: And today's first question comes from Mason Bourne with AWH Capital. Please go ahead.

Kan Li: Hi, thanks for taking the question. I guess to start, you provided pretty substantial guidance about increase in loan volumes for Q3. I wondered what you're seeing because you confidence for that growth. Well, this is most due to the, I think because of the environment.

Kan Li: The reason that you see a fairly low volume for the first two quarters is really because we have a very restrictive risk management system in place. That is why that our overall approval rate has been kept fairly low. But with the current environment, especially the much better delinquency performance that we have optimized our approval policy. So as a result, we will see a significant increase in our approval rate. That being said, there's also some other channels where we are able to successfully connect it in the first two quarters. And they will contribute to our, to some other new customers. So both combined that we are fairly confident with our bottom forecast.

Kan Li: Did you talk about customer acquisition cost and what you're seeing there, maybe how that's seen? I think overall our acquisition cost in terms of the rate has been kicked fairly constant. That is why when the approval rate, so when you think about it, when the approval rate is low, our overall spending also keeps the low. And that is translated into the lower long volume. Now, because of the poor, it is a little bit higher, and our overall spending will be higher in the Q3, and which will translate into the higher volume that will forecast it.

Kan Li: So are you seeing improving consumer health, or what is it really allowing your approval rates to go higher and the linkages to improve? I just wondered if maybe you're seeing a turn in the overall economy. Yeah, I don't think I really see the overall economy has been turning into the much better situation than before.

Kan Li: But what happened usually in this time, in this time of dynamics, is that some of the customers that they used to be okay customers, and now they have exited the market because they cannot be the okay customer anymore. And our model will be able to pick those, we'll be able to separate those marginal customers with much better customers. I think that's number one situation, as our overall nursing learning system is in place, it will automatically analyze all the data.

Kan Li: So as time goes by, even with bad economic situation, that our overall risk management efficiency will be higher. That is the reason number one. The second one is, as I mentioned, that we are able to get some good customers from some specific channels. Those channels before weren't open to us, but now they are able to accept us, and we are able to get some good customer from them, which will also increase our overall customer quality. So, combined the two forces, we are able to see that our overall performance will be better than before.

Kan Li: Well, your observation is absolutely correct, and our overall loan size has been decreasing significantly. And this is also another risk management control that we have in place, which besides the approval rate that I mentioned before, the average loan size is another very important tool that we implement in our risk management. So, when the environment is not good, that we will intentionally lower the average loan size. So, as you can see from this, as the overall environment is improving, that our average loan size will also grow, which will contribute to another contributor to our overall loan volume.

Unknown Executive: Thank you.

Unknown Executive: And as a reminder, if you'd like to ask a question, please press star then one at this time. We'll pause for just a moment to assemble our roster. And this concludes our question and answer session.

Victoria Yu: I'd like to turn the conference back over to Victoria Yu for the closing remarks. Thank you everyone for joining us on the call today. If you haven't got a chance to raise your questions, this will be pleased to answer them through the lab context. We look forward to speaking with you again in the near future. Thank you.

Operator: This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day. Thank you.

Speaker Change: hello and welcome to the x financial second quarter two thousand andtwentyfour earnings conference call

Operator: for Ernie's conference call. All participants will be in listen-only mode. Should you need assistance?

Speaker Change: all partparticipants will be in listen nly modled

Operator: Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two.

Speaker Change: suring assistance please give vo a conference specialists by pressing historic keyfo by zero

Speaker Change: after today's presentation there will be anopportunity to ask questions

Speaker Change: asking question you if i star then one on your telephone key pad to withdra your question please p start them two

Operator: Please note today's event is being recorded.

Victoria Yu: I would now like to turn the conference over to Victoria Yu. Please go ahead.

Speaker Change: please note today's event is being recorded i would now like to turn the conference over to victoria you please go ahead

Victoria Yu: Thank you, operator.

Victoria Yu: Hello everyone, and thank you for joining us today. The conference results, which were released early today, are available on the company's AR website at ire.shallingsgroup.com.

Speaker Change: i

Victoria: thank you operator hello everyone thank you for joining us today the company 's results what were relelieas early to today and our vable on the company's iron website at ars showing group outcome

Victoria Yu: On the call today from Exponential, our Mr. Kan Li is private and Mr. Frank Fuya Zheng, Chief Financial Officer. Mr. Li will give a brief overview of the company's business operations and highlights, followed by Mr. Zheng, who will go through the financials. They are all available to answer on questions during the Q&A session.

Speaker Change: on the callrow today from exponidentential our mter canly president and eas their friend through ation chief financial officer

Speaker Change: m le we'll give a bri overview of the company's business operations and highlights followed by inter genanks who we go through the financials they are all available to answer on cutures during the qna session

Unknown Executive: I would like to remind you that this company contains all of our looking statements under the same proper provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks on certainties and other factors all of which are difficult to predict and many of which are beyond the company's control which may cost the company's actual results performance or achievements to defer material from those in the public looking statements. For the information regarding least and other facts, risk on certainties and factors is included in the company's following with the U.S.

Speaker Change: i remain you that this callmy contains forward-looking statements under the safe harper provisions of the private securities litigation reform act of onethousandnine hundredandn five

Speaker Change: such statements are based on management's caring expectations and carbon market and operating condbations

Speaker Change: and relate to evmense involve known all our known risks uncertainties and other factorsi'll not reach are difficult to credit and many of which are beond the company's control which may cause for company's actual results performance our achievements to differ materially from thoseingin the forward-looking statements

Speaker Change: further information regarding lease and other facs ris risks

Speaker Change: uncertainties and ef factors is included in the company's filings with that u s securities and exchange commission

Unknown Executive: securities and exchange commission.

Unknown Executive: The company does not undertake any obligation to update any forward looking statement as a result of new information, future events, or otherwise, except as required by law.

Speaker Change: the company does not entundertake any obligation to updateiing forward-looking statement as a result of new information future events or otherwise except as required and the law it is now my pleasure to introduce mter can lee recently please grow ahead

Victoria Yu: It is now my pleasure to introduce Mr. Kan Li. Mr. Li, please go ahead.

Speaker Change: hello everyone we are very pleased to report another solid the quarter as we made a further progress in improving our profitability

Speaker Change: our proactive managing the long volume based down asset the quality dynamics continueed to bear fluit in the second quarter

Kan Li: As a result, while non-volume decline the year over year are net income for the quarter group significantly and the rich the record high. The total non-volume amount of facilitated and originated decreased a few percent year over year but increased the 6 percent sequentially to RMB 23 billion. Our total outstanding non-violence was RMB 42 billion as end-up June 2024.

Speaker Change: as a result while a no volume declineed the year-over-year our net income for the quarter gool significantly and the rigal recurred high

Speaker Change: the total no amount of facilities and originated the decrease two percent year-over-year but increase was six percent sequentially to rmb twenty rebunin

Speaker Change: our total outstanding knownan balance was irb forty-two bbuilding as will end up june two thousand and sey four

Kan Li: The Lincoln series for outstanding loans passed due for 31 to 60 days and the 91 to 180 days were 1.29 percent and 4.38 percent, respectively, as end-up quarter compared to 1.61 percent and 4.37 percent or quarter ago and the 296 percent and 2.5 percent a year ago.

Speaker Change: delinquency rates for outstanding knownon past two for thirty one to sixty days and ninety one to one hundred eighty days were one point two nine percent and the four point three eight percent respect ily at the end of the quarter

Speaker Change: compared to one twenty six one percent and the four point three seven percent oqu oago and the point of ninein six percent and the two point five percent a year ago

Kan Li: As we have seen an improvement in our asset quality, we have decided to ease our strict controls on known volumes, and we expect our known volumes to gradually recover on a year-over-year basis in the second half of the year. Meanwhile, we will continue to strengthen and refine our risk management system to improve asset quality. Our focus remains on sustainable profitability, and we employ flexible tactics to adapt to evolving market conditions to achieve this and, as always, to increase shareholder value.

Speaker Change: as we have seen an improvement in our asset quality we have decided to use our strict controls our no volumes and we expect our no volumes we gradually to recover our a year-over-year basis in the second half of the year

Speaker Change: meanwhile we will continue to strengthen strenthen and refine our risk management istance

Speaker Change: to improve as a quality our focus remains on sustainable profitability and we employe flexible tactics to adapt to evolving market conditions to achieve this and add do always to increase shareholder value

Fuya Zheng: Now, I will go to Frank, who will go through our financials. Thank you, Kent, and hello everyone. We delivered strong financial results this quarter. The total net revenue was R&D 1.4 billion, up to 12.5% year-on-year, and the 14% sequentially. We continued to focus on cost control and improve asset quality, and as a result, our net income grew 13% year-on-year and 14% sequentially to R&D 415 million. A record high in our history.

Speaker Change: now i will turn the callarter frank who will go to our financials

Frank: thank you kent and the hello everyone we delivered a strong financial results this quarter the total net revenue was on the one point four billion up twelve pointy five percent year on year and the fourteen percent equentially

Frank: we continuue to focus on cost control and the improved as set quality and as a result our nine income cop thirteen percent year on year fourteen percent sequentially to ithe four hundred fifteen mailling

Fuya Zheng: In May 2024, we announced a new 20 million share repurchase program in June 2024. We initiated a 10th offer to purchase 2 million ADS, which was complete in June July 2024. We are pleased to have asked you this ADS buyback, which will provide liquidity to shareholders seeking an asset and a premium price; at the same time, increase remaining shareholders' stakes in the company.

Frank: a record high in our history in may two thousand and twentyfour we announced a new twenty million shear repurchase program in junetwo thousand and twenty four we issue the attend offer two purchase two million yes

Frank: which was a complete in june july two thousand and twentyfour

Frank: we are pleased to have have excuted is byacts which would providide a liquidity to shareholders taking an efset at that premi premier price at at the same time increaseed remaining shareholders stakes in the company

Fuya Zheng: We are committed to profitable growth by exploring various avenues to further increase returns for our shareholders.

Frank: we have committed to probothve profitable growth while expling various avenues to further increase returns by our shareholders

Fuya Zheng: Now, I would like to brief some financial performance for you to please note that all numbers stated here in INB and around total net revenue increased by 12% to INB 1,373 million from INB 1,220 million in the same period of 2023. Pamela, due to growth in various aggregated revenue items compared with the same period of 2023, please refer to the analysis of this aggregate completion of the revenue. Origination and service expenses increased by 19% to INB 413 million from INB 349 million in the same period of 2023. Pamela, due to the increase in collection expenses resulting from the accumulated effect of the increased volume of loans facilitated and provided in the period's quarters, compared with the same period of 2023.

Frank: now i would like to brief ciil financial performance for q two please know that that all numbers pay that here

Frank: in ib and they run it up

Speaker Change: total net revenue increased by twelve percent to i b one thousand three hundred seventy three million from i b one thousand two hundred twenty million in the same period of two thousand and twenty three

Speaker Change: primmorary due to growth in various this aggregated revenue items compare with the same period of two thousand and twenty three please refer to the analysis of this asa proation of the revenue

Speaker Change: origination and service expenses increased by nineteen percent to i b four hundred fifteen mar some i the three hundred and forty nine marion in the same period of but twenty three

Speaker Change: primarily due to the increase impaction expenses resulting from with the accumity effactor of the increased volume our loans facilitated and the provided in the preious quarters compare with the same period of two thousandandtwenty three

Fuya Zheng: All acquisitions and marketing expenses increased by 3% to INB 324 million from INB 332 million in the same period of 2023. The position for loans receivable was ID 96 million compared with ID 55 million in the same period of 2023. Primary due to an increase in loans receivable held by the company as a result of the cumulative effect of increased volume of loans facilitated and provided in the period's quarters compared with the same period of 2023. Income from operations was ID 463 million compared with ID 45 million in the same period of 2023. Next income was ID 415 million compared with ID 366 million in the same period of 2023.

Speaker Change: boral acquisitions and the margketing vales increased by three percent to ithe three hundred and twenty four million from by the three hundred and thirty two bill in the same period of twenty three

Speaker Change: position for loans recealable was i ninety-six million compared with on the fifty five minilling in the same period of two thousand and twenty three primaryily due to

Speaker Change: an increase in loans so the feilable held by the company as a result of the humulative fact that we increased the volume of the lounans facilitated and the provided in the peious quarters compare with the same period above two thousand and twenty three

Speaker Change: income from operations was i v four hundred and sixty three milling compared with b four hundred forty five marilling in the same period of for twenty three

Speaker Change: net eincome was iv one hundred and fifty million compare with r v three hundred sixty -six million in the same period of money twenty three

Fuya Zheng: Now, gap of just that income was ID 375 million compared with ID 365 million in the same period of 2023.

Speaker Change: non gaap i just net income was oned three hundred seventy five year compared with ib three hundred and sixty five mary in the same period of two thousand and twenty three

Fuya Zheng: From further financial information, please refer to the early release of our website. With respect to our dividend, we provide a semi-annual dividend policy in March. For this policy, our border has also lies the declaration and payment of the semi-annual dividend of US $0.17 per year for the first half of 2024. For specific given payment dates and instructions, we refer to our Learning Release.

Speaker Change: further it financial information reease to refer to the earing release our website

Speaker Change: with respect to our dividends we provided a seilyannual dividend policyname march

Speaker Change: preunnot this policy our border has auized the declaration and the tainayment of the semi-andnitativity of u s

Speaker Change: seventeen cent per as for the first half of two thousand and twenty four was specific diven payment paid and the instructions recentlyreferred to our learning release now on our business outlook

Fuya Zheng: Now our business outlook. For Q3 this year, we expect the total loan amount facilitated and originated to be between ID 26 million and ID 27.5 million. This concludes our prepared remarks, and we would like to open the court to questions.

Speaker Change: were q three this year we expect the total long amount facilitated and originate to between i twenty six million billion and i b twenty-seven point five periillodion

Speaker Change: this concludes our prepared remarks and they would like to openerthe court to question operator please

Fuya Zheng: Operator, please. Thank you.

Operator: If you would like to ask a question, please press star, then one on your telephone keypad. If you are using a speaker phone, we ask you please pick up your handset before pressing the keys.

Speaker Change: thank you if you would like to ask a question please p starve and one to your telephone keyad

Speaker Change: if you'are using a speaker phone we ask do you please pick up your handset before putusing the keys

Operator: To withdraw your question, please press star, then two. Once again, that star than one. If you have a question.

Speaker Change: to withdraw your question please first ar two

Operator: And today's first question comes from Mason Bourne with AWH Capital. Please go ahead.

Speaker Change: once again then' star then one if you have a question

mason borne: and today's first question comes from mason borne with nh capital please go ahead

Mason Bourne: Hi, thanks for taking the question. I guess to start, you provided pretty substantial guidance about increase in loan volumes for Q3. I wondered what you're seeing because your confidence for that growth.

mason borne: thanks for taking the question i guess to start you provided pretty substantial guidance about increase in loan volumes for q three i wondered what you're seeing that gives you confidence for that growth

Kan Li: Well, this is most due to the, I think, because of the environment. The reason that you see a fairly low volume for the first two quarters is really because we have a very restrictive risk management system in our workplace. That is why that our overall approval rate has been kept fairly low. But with the current environment, especially the much better delinquency performance that we have optimized our approval policy. So, as a result, we will see a significant increase in our approval rate.

Speaker Change: well this is mostly due to the i think because of the environment to that the reason that you you see theority a low bottom for the first for the first two quarters is really because we we have a very restrictive risk andin theis in our in place

Speaker Change: that is why that our overall approval rate has been keps the fair you know

Speaker Change: but with the current environment specially is a much better inucy performance that we have we have optimized our approvo policy so as a result we will see a significant increase

Kan Li: That being said, there's also some other channels where we are able to successfully connect it in the first two quarters. And they will contribute to some other new costs. So both combined that way, we are very confident with our bottom forecast.

Speaker Change: significant increasing ourapproval rate that is being said there is also some other other channels where we are able to success for the connect trating the first two quarters and if they will contribute to our to some other new customers

Speaker Change: so post combined that is we are fa competed with our volume forecast

Mason Bourne: Did you talk about customer acquisition cost and what you're seeing there, maybe how that's changed? I think overall our acquisition cost in terms of the rate has been kicked fairly constant. That is why when the approval rate, so when you think about it, when the approval rate is low, our overall spending also kicked the low, and that is translated into the lower long volume. Now, because of the approval rate is a little bit higher, our overall spending will be higher in the Q3 and which will translate into the higher volume that will forecast it. So are you seeing improving consumer health, or what is it that's really allowing your approval rates to go higher and the linkages to improve?

Speaker Change: did you talk about customer acquisition cost and what you're seeing there maybe how that's changed

Speaker Change: i think overall our cost our acquisition costs in terms of the relate i has been cap a fair fairly constant

Speaker Change: that is why when the approval rate so when you think about it when proory below our overall spending also ti the low and that s transfer that is translatedating into the lower long volume

Speaker Change: now because of the flloorities either be higher and our earms so our over spending will be higher inthe q three and which will transcelate into the higher botum medical forecasted

Speaker Change: so are you seeing improving consumer health or what is it it's really allowing your approval rates to go higher and delinquencies to improve i i just wondered if maybe you're seeing a turn in the overall economy

Mason Bourne: I just wonder if maybe you're seeing a turn in the overall economy.

Kan Li: Yeah, I don't think I really see the overall economy has been turning into the much better situation than before, but what happens usually in this time of the dynamics is that some of the customers that they used to be okay customers, and now they have exited the market because they cannot be the okay customer anymore, and our model will be able to pick those, we'll be able to separate those marginal customers with much better customers. I think that's the number one situation as our overall machine learning system is in place; it will automatically analyze all the data. So, as time goes by, even with the bad economic situation, our overall risk management efficiency will be higher.

Speaker Change: yesi don't i don't think i really see the overall economy had been turning into the much better sitation and before

Speaker Change: but what happened the usually in this time this time of dynamics is some of the customers that is the use to be okay customers

Speaker Change: and now they have eity the market because they cannot be the okay customer anymore

Speaker Change: and our model will be able to peick it those

Speaker Change: we'll be able to separate those lo home

Speaker Change: marginal customers with the much better customers i think that's a number we situation as our

Speaker Change: as our overall learning merching learning system is in place it will automatically analyze all the data so as as time goes by even with bad economic situation that our overall risk management uficien ci willilitybe higher

Kan Li: That is the reason number one. The second one is, as I mentioned, that we are able to get some good customer from some specific channels. Those channels before weren't open to us, but now they are able to accept us and we are able to get some good customers from them, which will also increase our overall customer quality. So, combine the two forces, we are able to see that our overall performance will be better than before.

Speaker Change: that isn't that it the rareason number one

Speaker Change: the second as i mentioned then we are able to get some good customer from some spespaceific channels those channels before weren't open to us but now they are able to accept us and we are applicated some

Speaker Change: good customer from them which we also increase our overall customer quality so combinine the two forces where i able to see that our overall performance will be better thaninety before

Mason Bourne: Okay, last one from me. It seems like your number of active borrowers is substantial while loan volumes were down year over year. What's driving, I assume that means the average loan size is significantly smaller, is that correct, and what's driving that? Is that something that you're doing, or is that just a function of the market?

Speaker Change: okay last one for me it seems like a number of active borrowers is up substantially while loan volumes were down year-over-year

Speaker Change: what's driving i assume that means that average loan siz is significantly smaller is that correct and what's driving that is that of

Speaker Change: you know something that you're doing or is that you just the function of the market

Kan Li: Well, your observation is absolutely correct, and our overall loan size has been decreased significantly. This is also another risk management control that we have in place, which, besides the approval rates that I mentioned before, the average loan size is another very, very important tool that we implement in our risk management. So, when the environment is not good, that we will intentionally lower the average loan size. So, as you can see from this, as the economy or as the overall environment is improving, that our average loan size will also grow, which we will contribute to, which will be another contributor to our overall loan volume.

Speaker Change: well your observvity is absolutely correct and our overall our overall known size has been tacisticsignificantary

Speaker Change: and this is this is also another risk management control that we are having in place

Speaker Change: as which besides the approvalrated that i mentioned before the average in knownsizeesthese are another very very important the tool that are wewere implementingking our risk management

Speaker Change: so when the environment is isn not good that it will will intentionally lower average norommalsi

Speaker Change: so as you can fer from this as the economies as the overall environment is improving that our average in known side will also grow which will contributor which will be another contributor to our over nor volume

Operator: Thank you. And, as a reminder, if you'd like to ask a question, please press star, then one at this time. We'll pause for just a moment to assemble our roster.

Speaker Change: thank you

Speaker Change: umthank you and i a reminder if you'd like to question please post star and one at this time 'll pause for just a moment to assemble our roster

Operator: And this concludes our question-and-answer session.

Speaker Change: i

Victoria Yu: I'd like to turn the conference back over to Victoria Yu for the closing remarks. Thank you, everyone, for joining us on the call today. If you haven't got a chance to raise your questions, this will be pleased to answer them through the lab context. We look forward to speaking with you again in the near future. Thank you.

Operator: for Ernie's Conference Call. All participants will be in listen only mode.

Operator: for Ernie's Conference Call. All participants will be in listen only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.

vtoria: and this concludes your question answer session i'd like to turn the conference back over to vtoria you for closing remarks

Operator: Should you need assistance?

Operator: Please signal a conference specialist by pressing the star key followed by zero.

vtoria: thank you everyone's joining us on the call today if you haven't got a chance to raise your questions we will be pleased to answer them through the lab context you look forward to speaking with you of g the your fure thank you

Operator: After today's presentation there will be an opportunity to ask questions.

Operator: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star than one on your telephone keypad. To withdraw your question please press star than two.

Operator: To ask a question you may press star than one on your telephone keypad.

Operator: This concludes today's conference call. We thank you all for attending today's presentation.

Operator: To withdraw your question please press star than two.

Speaker Change: thank you this concludes today's conference call we thank you all for attending today's presentation you may now disnect your lines and have a wonderful day

Operator: Please note today's event is being recorded.

Operator: You may now disconnect your lines and have a wonderful day. Thank you.

Victoria Yu: I would now like to turn the conference over to Victoria Yu.

Victoria Yu: I would now like to turn the conference over to Victoria Yu. Please go ahead. Thank you operator. Hello everyone and thank you for joining us today. The conference results what were released early today and are available on the company's AR website at ire.shallingsgroup.com.

Victoria Yu: Please go ahead.

Victoria Yu: Thank you operator.

Kan Li: Hello everyone and thank you for joining us today.

Victoria Yu: On the call today from exponential our Mr. Kan Li is private and Mr. Frank Fuya Zheng, Chief Financial Officer. Mr. Li will give a brief overview of the company's business operations and highlights followed by Mr. Zheng, who we go through the financials. They are all available to answer on questions during the Q&A session.

Kan Li: The conference results what were released early today and are available on the company's AR website at ire.shallingsgroup.com.

Unknown Executive: I would like to remind you that this company contains all of our looking statements under the same proper provisions of the private securities litigation reform act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks on certainties and other factors all of which are difficult to predict and many of which are beyond the company's control which may cost the company's actual results performance or achievements to defer material from those in the public looking statements. For the information regarding least and other facts risk on certainties and factors is included in the company's following with the U.S, securities and exchange commission.

Unknown Executive: The company does not undertake any obligation to update any forward looking statement as a result of new information, future events or otherwise except as required and the law.

Kan Li: On the call today from exponential our Mr. Kan Li is private and Mr. Frank Fuya Zheng, Chief Financial Officer.

Kan Li: It is now my pleasure to introduce Mr. Kan Li. Mr. Li, please go ahead. Hello everyone. We are very pleased to report another solid quarter as we made a further progress in improving our profitability. Our proactive management of non-volume based on asset quality dynamics continue to bear fruit in the second quarter. As a result, while non-volume decline the year over year are net income for the quarter group significantly and the rich the record high.

Kan Li: Mr. Li will give a brief overview of the company's business operations and highlights followed by Mr. Zheng, who we go through the financials.

Kan Li: They are all available to answer on questions during the Q&A session.

Kan Li: I would like to remind you that this company contains all of our looking statements under the same proper provisions of the private securities litigation reform act of 1995.

Kan Li: Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks on certainties and other factors all of which are difficult to predict and many of which are beyond the company's control which may cost the company's actual results performance or achievements to defer material from those in the public looking statements. For the information regarding least and other facts risk on certainties and factors is included in the company's following with the U.S, securities and exchange commission.

Kan Li: The company does not undertake any obligation to update any forward looking statement as a result of new information, future events or otherwise except as required and the law.

Kan Li: The total non-volume amount of facilitated and originated decreased a few percent year over year but increased the 6 percent sequentially to RMB 23 billion. Our total outstanding non-violence was RMB 42 billion as end-up June 2024. The Lincoln series for outstanding loans passed due for 31 to 60 days and the 91 to 180 days were 1.29 percent and 4.38 percent respectively as end-up quarter compared to 1.61 percent and 4.37 percent or quarter ago and the 296 percent and 2.5 percent a year ago.

Kan Li: As we have seen an improvement in our asset quality, we have decided to ease our strict controls on known volumes, and we expect our known volumes to gradually recover on a year-over-year basis in the second half of the year. Meanwhile, we will continue to strengthen and refine our risk management system to improve asset quality. Our focus remains on sustainable profitability and we employ flexible tactics to adapt to evolving market conditions to achieve this and, as always, to increase shareholder value.

Kan Li: It is now my pleasure to introduce Mr. Kan Li.

Fuya Zheng: Now, I will go to Frank who will go through our financials. Thank you, Kent, and hello everyone. We delivered strong financial results this quarter. The total net revenue was R&D 1.4 billion, up to 12.5% year-on-year, and the 14% sequentially. We continued to focus on cost control and improve asset quality, and as a result, our net income grew 13% year-on-year and 14% sequentially to R&D 415 million.

Kan Li: Mr. Li, please go ahead.

Kan Li: Hello everyone.

Kan Li: We are very pleased to report another solid quarter as we made a further progress in improving our profitability.

Kan Li: Our proactive management of non-volume based on asset quality dynamics continue to bear fruit in the second quarter.

Fuya Zheng: A record high in our history. In May 2024, we announced a new 20 million share repurchase program in June 2024. We initiated a 10th offer to purchase 2 million ADS, which was a complete in June July 2024. We are pleased to have asked you this ADS buyback, which will provide a liquidity to shareholders seeking an asset and a premium price at the same time increase remaining shareholders' stakes in the company.

Fuya Zheng: We are committed to profitable growth by exploring various avenues to further increase returns for our shareholders. Now, I would like to brief some financial performance for you to please note that all numbers stated here in INB and around total net revenue increased by 12% to INB 1,373 million from INB 1,220 million in the same period of 2023. Pamela, due to growth in various aggregated revenue items compared with the same period of 2023, please refer to the analysis of this aggregate completion of the revenue.

Kan Li: As a result, while non-volume decline the year over year are net income for the quarter group significantly and the rich the record high.

Kan Li: The total non-volume amount of facilitated and originated decreased a few percent year over year but increased the 6 percent sequentially to RMB 23 billion.

Fuya Zheng: Origination and service expenses increased by 19% to INB 413 million from INB 349 million in the same period of 2023. Pamela, due to the increase in collection expenses resulting from the accumulated effect of the increased volume of loans facilitated and provided in the period's quarters, compared with the same period of 2023. All acquisitions and marketing expenses increased by 3% to INB 324 million from INB 332 million in the same period of 2023.

Fuya Zheng: The position for loans receivable was ID 96 million compared with ID 55 million in the same period of 2023. Primary due to an increase in loans receivable held by the company as a result of the cumulative effect of increased volume of loans facilitated and provided in the period's quarters compared with the same period of 2023. Income from operations was ID 463 million compared with ID 45 million in the same period of 2023.

Fuya Zheng: Next income was ID 415 million compared with ID 366 million in the same period of 2023. Now gap of just that income was ID 375 million compared with ID 365 million in the same period of 2023.

Fuya Zheng: For specific given payment dates and instructions, we refer to our learning release.

Fuya Zheng: Now our business outlook. For Q3 this year, we expect the total loan amount facilitated and originated to be between ID 26 million and ID 27.5 million.

Kan Li: Our total outstanding non-violence was RMB 42 billion as end-up June 2024.

Fuya Zheng: This concludes our prepared remarks and we would like to open the court to questions.

Operator: Operator, please. Thank you. If you would like to ask a question, please press star than one on your telephone keypad. If you are using a speaker phone, we ask you please pick up your handset before pressing the keys. To withdraw your question, please press star than two. Once again, that star than one if you have a question.

Mason Bourne: And today's first question comes from Mason Bourne with AWH Capital. Please go ahead. Hi, thanks for taking the question. I guess to start, you provided pretty substantial guidance about increase in loan volumes for Q3. I wondered what you're seeing because you confidence for that growth. Well, this is most due to the, I think, because of the environment. The reason that you see a fairly low volume for the first two quarters is really because we have a very restrictive risk management system in our workplace.

Kan Li: The Lincoln series for outstanding loans passed due for 31 to 60 days and the 91 to 180 days were 1.29 percent and 4.38 percent respectively as end-up quarter compared to 1.61 percent and 4.37 percent or quarter ago and the 296 percent and 2.5 percent a year ago.

Kan Li: Our focus remains on sustainable profitability and we employ flexible tactics to adapt to evolving market conditions to achieve this and, as always, to increase shareholder value.

Mason Bourne: That is why that our overall approval rate has been kept fairly low. But with the current environment, especially the much better delinquency performance that we have optimized our approval policy. So as a result, we will see a significant increase in our approval rate. That being said, there's also some other channels where we are able to successfully connect it in the first two quarters. And they will contribute to some other new costs.

Fuya Zheng: Now, I will go to Frank who will go through our financials.

Fuya Zheng: Thank you, Kent, and hello everyone.

Fuya Zheng: We delivered strong financial results this quarter.

Fuya Zheng: The total net revenue was R&D 1.4 billion, up to 12.5% year-on-year, and the 14% sequentially.

Fuya Zheng: We continued to focus on cost control and improve asset quality, and as a result, our net income grew 13% year-on-year and 14% sequentially to R&D 415 million. A record high in our history.

Kan Li: So both combined that way, we are very confident with our bottom forecast. Did you talk about customer acquisition cost and what you're seeing there, maybe how that's changed? I think overall our acquisition cost in terms of the rate has been kicked fairly constant. That is why when the approval rate, so when you think about it, when the approval rate is low, our overall spending also kicked the low, and that is translated into the lower long volume now because of the approval rate is a little bit higher and our overall spending will be higher in the Q3 and which will translate into the higher volume that will forecast it.

Fuya Zheng: In May 2024, we announced a new 20 million share repurchase program in June 2024. We initiated a 10th offer to purchase 2 million ADS, which was a complete in June July 2024. We are pleased to have asked you this ADS buyback, which will provide a liquidity to shareholders seeking an asset and a premium price at the same time increase remaining shareholders' stakes in the company.

Fuya Zheng: We are committed to profitable growth by exploring various avenues to further increase returns for our shareholders.

Fuya Zheng: Pamela, due to growth in various aggregated revenue items compared with the same period of 2023, please refer to the analysis of this aggregate completion of the revenue. Origination and service expenses increased by 19% to INB 413 million from INB 349 million in the same period of 2023. Pamela, due to the increase in collection expenses resulting from the accumulated effect of the increased volume of loans facilitated and provided in the period's quarters, compared with the same period of 2023.

Kan Li: So are you seeing improving consumer health or what is it that's really allowing your approval rates to go higher and the linkages to improve? I just wonder if maybe you're seeing a turn in the overall economy. Yeah, I don't think I really see the overall economy has been turning into the much better situation than before, but what happens usually in this time of the dynamics is that some of the customers that they used to be okay customers, and now they have exited the market because they cannot be the okay customer anymore, and our model will be able to pick those, we'll be able to separate those marginal customers with much better customers.

Fuya Zheng: All acquisitions and marketing expenses increased by 3% to INB 324 million from INB 332 million in the same period of 2023.

Fuya Zheng: Income from operations was ID 463 million compared with ID 45 million in the same period of 2023.

Kan Li: I think that's the number one situation as our overall machine learning system is in place, it will automatically analyze all the data, so as time goes by even with the bad economic situation that our overall risk management efficiency will be higher. That is the reason number one. The second one is as I mentioned that we are able to get some good customer from some specific channels. Those channels before weren't open to us, but now they are able to accept us and we are able to get some good customer from them, which will also increase our overall customer quality. So, combine the two forces, we are able to see that our overall performance will be better than before.

Fuya Zheng: Next income was ID 415 million compared with ID 366 million in the same period of 2023.

Fuya Zheng: Now gap of just that income was ID 375 million compared with ID 365 million in the same period of 2023.

Kan Li: Okay, last one from me, it seems like your number of active borrowers is substantially while loan volumes were down year over year. What's driving, I assume that means the average loan size is significantly smaller, is that correct, and what's driving that? Is that something that you're doing, or is that just a function of the market? Well, your observation is absolutely correct, and our overall loan size has been decreased significantly, and this is also another risk management control that we have in place, which besides the approval rates that I mentioned before, the average loan size is another very, very important tool that we implement in our risk management. So, when the environment is not good, that we will intentionally lower the average loan size.

Fuya Zheng: From further financial information, please refer to the early release of our website.

Fuya Zheng: With respect to our dividend, we provide a semi-annual dividend policy in March. For this policy, our border has also lies the declaration and payment of the semi-annual dividend of US $0.17 per year for the first half of 2024.

Fuya Zheng: For specific given payment dates and instructions, we refer to our learning release.

Fuya Zheng: Now our business outlook.

Fuya Zheng: For Q3 this year, we expect the total loan amount facilitated and originated to be between ID 26 million and ID 27.5 million.

Operator: So, as you can see from this, as the economy or as the overall environment is improving, that our average loan size will also grow, which we will contribute to, which will be another contributor to our overall loan volume. Thank you. And as a reminder, if you'd like to ask a question, please press star then one at this time. We'll pause for just a moment to assemble our roster. And this concludes our question and answer session.

Fuya Zheng: This concludes our prepared remarks and we would like to open the court to questions.

Operator: Operator, please.

Operator: Thank you.

Operator: If you would like to ask a question, please press star than one on your telephone keypad. If you are using a speaker phone, we ask you please pick up your handset before pressing the keys.

Operator: To withdraw your question, please press star than two.

Operator: Once again, that star than one if you have a question.

Mason Bourne: And today's first question comes from Mason Bourne with AWH Capital.

Mason Bourne: Please go ahead.

Mason Bourne: Hi, thanks for taking the question.

Operator: This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day. Thank you.

Mason Bourne: I guess to start, you provided pretty substantial guidance about increase in loan volumes for Q3.

Mason Bourne: I wondered what you're seeing because you confidence for that growth.

Kan Li: Well, this is most due to the, I think, because of the environment.

Kan Li: The reason that you see a fairly low volume for the first two quarters is really because we have a very restrictive risk management system in our workplace.

Kan Li: That is why that our overall approval rate has been kept fairly low.

Kan Li: But with the current environment, especially the much better delinquency performance that we have optimized our approval policy. So as a result, we will see a significant increase in our approval rate.

Kan Li: That being said, there's also some other channels where we are able to successfully connect it in the first two quarters.

Kan Li: And they will contribute to some other new costs.

Kan Li: So both combined that way, we are very confident with our bottom forecast.

Mason Bourne: Did you talk about customer acquisition cost and what you're seeing there, maybe how that's changed?

Kan Li: I think overall our acquisition cost in terms of the rate has been kicked fairly constant.

Kan Li: That is why when the approval rate, so when you think about it, when the approval rate is low, our overall spending also kicked the low, and that is translated into the lower long volume now because of the approval rate is a little bit higher and our overall spending will be higher in the Q3 and which will translate into the higher volume that will forecast it.

Mason Bourne: So are you seeing improving consumer health or what is it that's really allowing your approval rates to go higher and the linkages to improve?

Mason Bourne: I just wonder if maybe you're seeing a turn in the overall economy.

Kan Li: That is the reason number one.

Kan Li: The second one is as I mentioned that we are able to get some good customer from some specific channels. Those channels before weren't open to us, but now they are able to accept us and we are able to get some good customer from them, which will also increase our overall customer quality.

Kan Li: So, combine the two forces, we are able to see that our overall performance will be better than before.

Mason Bourne: Okay, last one from me, it seems like your number of active borrowers is substantially while loan volumes were down year over year.

Mason Bourne: What's driving, I assume that means the average loan size is significantly smaller, is that correct, and what's driving that?

Mason Bourne: Is that something that you're doing, or is that just a function of the market?

Kan Li: Well, your observation is absolutely correct, and our overall loan size has been decreased significantly, and this is also another risk management control that we have in place, which besides the approval rates that I mentioned before, the average loan size is another very, very important tool that we implement in our risk management.

Kan Li: So, when the environment is not good, that we will intentionally lower the average loan size.

Kan Li: So, as you can see from this, as the economy or as the overall environment is improving, that our average loan size will also grow, which we will contribute to, which will be another contributor to our overall loan volume.

Mason Bourne: Thank you.

Operator: And as a reminder, if you'd like to ask a question, please press star then one at this time.

Operator: We'll pause for just a moment to assemble our roster.

Operator: And this concludes our question and answer session.

Victoria Yu: I'd like to turn the conference back over to Victoria Yu for the closing remarks.

Victoria Yu: Thank you everyone for joining us on the call today.

Victoria Yu: If you haven't got a chance to raise your questions, this will be pleased to answer them through the lab context.

Victoria Yu: We look forward to speaking with you again in the near future.

Victoria Yu: Thank you.

Operator: This concludes today's conference call.

Operator: We thank you all for attending today's presentation.

Operator: You may now disconnect your lines and have a wonderful day.

Operator: Thank you.

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