Q3 2024 Yiren Digital Ltd Earnings Call
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Speaker Change: Good day and welcome to the Year in Digital 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: 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.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star, then one on your telephone keypad. And to withdraw your question, please press star, then two.
Keyao He: I would now like to turn the conference over to Keyao He, IR officer. Please go ahead.
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Speaker Change: How did it go? Great. Let's pretend I'm Rachel's friend? That's no way to talk me. We have to listen to what's in her head. James... I've had it with broken hearts in all these years. With tears in my eyes. With other views from the outside. I wanna say I am really sorry about what I said. I never said cry.
Speaker Change: Thank you operator. Good morning and good evening everyone. Today's call features the presentation by the founder, chairman and CEO. Our credit is our CEO Mr. Ning Tang and our CFO Mr. Yu Ningfeng. There will be Q&A section after the prepared remarks.
Speaker Change: Before beginning, we would like to remind you that discussions during this call contain forward-looking statements made under the safe-hybrid provision of the U.S. Private Security's Dedication Reform Act of 1995. Such statements accept risks, uncertainties, and factors that can cause actual results to differ majorly from those contained in any such statement.
Speaker Change: Further information regarding filter risk and certainty of factors is included in our filings with the U.S. Securities and Exchange Commission.
Speaker Change: We do not undertake any obligation to update any forward-looking statements as required under the relevant rules.
Speaker Change: During the call, we will be referring to certain non-gap financial measures and fundamental measures to review and assess our operating performance.
Speaker Change: These main-gap financial measures are not intended to be considered in isolation or as a substitute for the financial information presented in accordance with the U.S. GAAP.
Speaker Change: For information about this NAND Gap Financial Measures and Reconciliation with Gap Measures, please refer to our earnings price release.
I will now pass it to Ning for opening remarks.
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Thank you all for joining our earnings conference call today.
Speaker Change: I am pleased to report a stable and healthy quarter with concrete business development and strategic exploration.
driven by our quality over quantity strategy.
Speaker Change: This quarter's results underscored our consistent focus on sustainable, high-quality growth.
Speaker Change: Before I go into operational details, I'd like to share some highlights from this quarter.
Speaker Change: First, our financial services business made notable improvements in asset quality.
Speaker Change: Thanks to our continued focus on strong risk management and borrower optimization.
Speaker Change: Second, we've been proactively exploring new online business models for our insurance division.
and have seen visible progress.
driving an increase in sales of retirement-themed insurance products.
Speaker Change: At a tech-powered platform, Yiren Digital prioritizes the use of technology and the digital capabilities to enhance our business model.
Speaker Change: Our ongoing online business model is expanding from financial services to the insurance brokerage space.
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Speaker Change: Third, our ongoing investment in AI is already bearing fruit, with proprietary AI applications now largely integrated into our daily operations.
Driving Efficiency and Improving Customer Experience
Speaker Change: All together, these efforts are laying a solid foundation for the next phase of higher quality growth.
Speaker Change: One that will continue to drive value for our shareholders in the years to come.
Now, let me go through our key business highlights.
First, regarding our financial services business,
Speaker Change: The third quarter of 2024 saw continued growth, with total loan volume reaching RMB $13.4 billion, a 36% increase year-over-year.
Speaker Change: The number of borrowers stayed relatively stable quarter over quarter at $115 million, a 24% growth compared to the same period last year.
Speaker Change: Meanwhile, our lending platform, Yixianghua, remains highly popular, with monthly active users staying steady at around 4.5 million, a 52% year-over-year increase.
Speaker Change: growth has been primarily driven by strong demand for our small revolving loan product and an increase in repeat borrowing from high-quality customers.
Speaker Change: As I mentioned earlier, we have enhanced the quality of our customer base by focusing on higher quality customers with stronger repayment capabilities and better risk profiles.
Speaker Change: And now, those new customers are contributing to a growing proportion of repeat loans.
becoming an important growth driver.
Speaker Change: Over 60% of the loans facilitated during the quarter came from repeat borrowers, up 5 percentage points from the previous quarter.
Speaker Change: We are now focusing on increasing the repeat volume rate among existing customers.
while maintaining a balanced mix of new and returning customers.
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Speaker Change: Furthermore, as a result of our customer quality upgrade and highly effective AI-driven risk management,
We've seen significant improvements across various risk indicators.
confirming the effectiveness of our approach.
Speaker Change: In the third quarter, our FPD30-plus rate dropped by 32 basis points to a record low.
Speaker Change: As of September 30, 2024, delinquency rates for the 1-30 day, 31-60 day, and 60-90 day buckets fell by 10, 20, and 30 basis points, quarter over quarter, respectively.
Additionally, M1 recovery rate rose by 1.82 percentage points.
reaching an all-time high.
Speaker Change: The shift in our borough structure establishes a solid foundation for our sustainable growth.
Speaker Change: On the funding side, we made essential progress in expanding our funding partnerships.
Speaker Change: By the end of the third quarter of 2024, we had added nearly 20 new funding partners for the year.
Speaker Change: Meanwhile, our funding cost saw another 64 basis points reduction quarter over quarter.
Moving on to our international business.
Our growth momentum remains strong.
and the Philippines.
Speaker Change: Both long volumes and revenues posted a double-digit increase quarter over quarter.
Speaker Change: We also began optimizing our customer base there while iterating our product offerings.
Speaker Change: And we expect these efforts to positively impact the profitability in the fourth quarter of this year.
Our AI strategy
Speaker Change: We made substantial progress with six proprietary AI systems now, supporting customer acquisition, customer service, asset management, and collections in our daily operations.
I will now highlight several updates to demonstrate this progress.
Firstly, for our domestic business operations,
AI has significantly enhanced our collection and quality assurance processes.
Speaker Change: As of the end of third quarter, 77% of Day 1 overdue cases were covered by AI robots.
Speaker Change: resulting in labor cost savings of nearly RMB 2 million in Q3 alone.
Meanwhile, to ensure the high professionalism of our services,
Speaker Change: We deployed 20 AI models for quality assurance in loan collections and 8 AI models for quality assurance in customer service.
with the collections models achieving over 96% accuracy.
Speaker Change: Additionally, we strengthened our AI talent pool by hiring over 50 professionals specializing in AI development, data science, and modeling.
further enhancing our digital capabilities.
Secondly, in our overseas operations,
Speaker Change: We fully developed and refined our AI-powered ID verification model in the Philippines.
Speaker Change: achieving an accuracy rate of nearly 95% in the third quarter with performance now stabilizing.
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Moving to our insurance foreclosure business.
Speaker Change: The overall industry has faced the profitability pressure due to regulatory changes.
Speaker Change: including lower interest rates and the policy of unified commissions and fees in reporting and underwriting.
Speaker Change: Despite these challenges, our total premiums this quarter recovered to RMB 1.35 billion.
A 27% quarter-over-quarter increase.
The rebound was partially driven by our online business initiatives.
Speaker Change: As I mentioned earlier, we've made progress in customer acquisition through social media, supported by AI-generated content.
Speaker Change: During the quarter, new policy premiums from social media channels contributed RMB 7.1 million.
This is a promising start.
Speaker Change: and we also built a dedicated team to focus on private traffic operations.
Driving Efficient Customer Acquisition and Conversions
Speaker Change: Additionally, we are working on creating more synergies between our lending platform and insurance services.
by offering customized insurance products to our borrowers.
Speaker Change: And we expect to see growth from these efforts in the fourth quarter.
in the Consumption and Lifestyle Services segment.
Speaker Change: Our total GMB was RMB 508 million for the quarter, a 10% year-over-year decline.
Speaker Change: As our customer base evolves, we are refining our product range to better serve our evolving demographic.
Speaker Change: Looking ahead, we plan to introduce more high-quality, tailored products to meet their specific needs.
In summary, our priority remains ensuring long-term sustainable growth.
in times of external uncertainty and the market fluctuations.
Speaker Change: It is critical to stay focused on maintaining the quality of our business.
Speaker Change: We will continue to expand our online operations and enhance synergies across our businesses.
while further investing in R&D and increasing AI penetration.
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Speaker Change: Furthermore, regarding our AI development, I would like to reiterate that we have been executing our AI strategy through the AI lab.
Speaker Change: which incubates, invests in, and provides value-added services to AI startups targeting enterprises, developers, and consumers.
Speaker Change: We have made several early-stage investments this year, and we are exploring business cooperation with them.
Speaker Change: Additionally, I am pleased to share that the commercialization of our proprietary AI systems is already underway and we expect to see corresponding revenue reflected in our P&L in the near future.
Speaker Change: Now, I will pass it to Yunying, who will go through our financial performance.
will see a new day, part 1
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Speaker Change: Thank you. So, hello everyone. On this call, I will only focus on our key financial highlights.
Speaker Change: Please refer to our earning release and IR deck for further details, both available on our website.
Thank you.
Speaker Change: First of all, we are glad to have delivered a healthy quarter with stable financial performance. In the third quarter of this year, our total revenue reached RMB 1.5 billion, up 30% year-over-year.
Speaker Change: In the financial service segment, total loan participation continues to grow steadily, reaching RMB $13.4 billion at 36% year-over-year.
Speaker Change: This is primarily driven by strong demand for our small revolving lawn products and the rising repeat volume from our high-quality borrowers.
Speaker Change: Revenue from our financial service business increased 25% year-over-year to RMB 836 million, maintaining a healthy and steady growth rate in line with our quality-over-quantity business guideline given external flat durations.
Thank you. Thank you. Thank you.
Speaker Change: In the insurance sector, our gross rate and premiums were RMB 1.4 billion, down 5% year-over-year, up 27% quarter-over-quarter. The annual decrease was primarily due to a significant decline in our live insurance sales, resulting from regulatory...
Speaker Change: changes and product adjustment. The quarterly rebound was driven by our online insurance sales. As our ongoing online initiative continues to progress, we expect further recovery in our overall insurance volume in 2025.
Speaker Change: So earlier this year, the guaranteed return on life insurance product was further capped at 2.5 NOB under the new regulation, following a rate reduction from 3.5% to 3% last August, which has further impacted the overall profitability of the life insurance sector in China.
Speaker Change: industry-wide. Consequently, the third quarter this year revenue from the insurance segment were RMB 85.5 million down 68% year-over-year.
[inaudible]
Speaker Change: In the consumption and lifestyle segment, the total GMV for this quarter stood at RMB 508 million, a decrease of 10% year-over-year.
Speaker Change: The decline was due to already high product penetration among existing customers and our strategic reduction in product offering as we move up market with our customer base.
Speaker Change: As our customer demographic evolves, we are strategically phasing out older product offerings and developing new products tailored to their specific profiles and needs.
Speaker Change: On the expense side, sales and marketing spend increased 71% year-over-year to RMB 336 million. This annual growth was mainly fueled by the swift expansion of our financial service segment and enhanced marketing efforts.
Speaker Change: focus on attracting new and high-quality customers. Research and development expense increased 287 year-over-year to RMB 151 million due to our ongoing investment in AI enhancement, technology advancement, and hiring of AI talents.
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Speaker Change: Origination, servicing and other operating costs decreased 16% year-over-year to RMB 206 million. This was mainly because the decrease in the insurance business volume which resulted in lower channel rebates and associated settlement costs.
Speaker Change: GMA expense increased 50% year-over-year to RMB 80 million. The annual growth was mainly due to the increasing incentive bonuses and employee benefits.
Speaker Change: The allowance for the contract ads and receivables was RMB 95 million, up 31% year-over-year. The increase was mainly driven by growth in our loan volume facility.
Speaker Change: Provision for contingent liability this quarter increased to RMB 272 million from RMB 11 million in the same period of 2023. This is a result of a continuous growth in loan volumes and our new risk-taking model, which requires substantial upfront provision according to the current accounting standard.
Speaker Change: However, this provision will be periodically recognized in the P&L as guaranteed service fee over time.
Speaker Change: In the third quarter, the revenue from Guaranteed Service reached RMB 137 million, which is five times that in the same period last year.
Speaker Change: Now on the bottom line, net income of this quarter was RMB355 million, decreased 36% year-over-year. The decrease of net income due to three reasons.
Speaker Change: So firstly, as noted earlier, overall probability in the insurance business decreased.
Speaker Change: Secondly, marketing expense and R&D expense rose as we continue to invest in attracting new high-quality borrowers from our financial service business and investing in developing our in-house AI capabilities.
Speaker Change: Thirdly, significant up-front provision has been set aside as we increase loan volume under our risk-taking models.
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Speaker Change: Regarding cash flow, so as our loan facilitation business continues to grow and our loan balance expands, our funding sources, which are banks, financial institutions, et cetera, and associated guaranteed companies are request that we provide a strategic deposit, a common practice in the industry.
Speaker Change: This quarter, we made one-time deposit payment based on our current loan balance, resulting in a notable decrease in our operating cash flow. We generated approximately RMB 50 million net cash from our operations this quarter, but looking ahead, cash flow is expected to return to normal level next quarter.
Speaker Change: On the balance sheet side, our cash-on-cash equivalent remains strong at RMB3.7 billion, though reflecting a notable decrease.
Speaker Change: This change is related to our long-term investment in business expansion and potential license acquisition, which are still in progress. We will disclose more details once the deals are secured.
Now, regarding shareholder returns.
Speaker Change: Firstly, for share buybacks, in the third quarter of this year, we allocated US$3 million to repurchase shares in the public market.
Speaker Change: As of September 13, 2024, the company has purchased approximately 5 million ADS in the open market for a total of approximately US$16.5 million excluding commissions under the 2022 share repurchase program.
Speaker Change: Additionally, we distributed the cash dividend in October under our semi-annual dividend policy with a total payout ratio of 40% of our earnings for the first half of 2024.
Speaker Change: Lastly, on our business outlook, based on our assessment of current business and marketing condition, we expect our revenue for the fourth quarter of 2024 to stand between RMB 1.3 billion to RMB 1.5 billion with a healthy net profit margin.
Speaker Change: These represent our current and preliminary assessments, which may be subject to change and uncertainties. These conclude our remarks.
I'll return with open for Q&A session.
Speaker Change: Thank you. Thank you. We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad.
To withdraw your question, please press star then 2.
We'll pause for just a moment to assemble our roster.
Speaker Change: Jiek, Narcissus, Chao, Xiaotong, Zhu Zan Li Chenyu, Hu rename, Lée name, Zhao name, Xie name Xun name, Zhu name, Xiaonam name, Yu name, Yue name, Shi name, I Lingna name, Yongye name, chang name, sak name gongshan, Ke Ngom name, Wan, Wen Hong family name Meng name, Yuanlin name, Shao chan name, Huang chan name, Shuang gongshan name,
Speaker Change: And our first question today comes from Chris Wu with Look Capital. Please go ahead.
Akihabara Shochuku
Speaker Change: Hey, thank you, management. Thank you both for your sharing. Looking at the financial results, we have actually seen your loan volume by 3.5% quarter to quarter, and it's going a bit down from last quarter, which is 9%. And may we know why is there a slowdown?
Speaker Change: And then also going to Q4, have you seen any further pickup in credit demand and loan application in October and November? And any updates on your new customer acquisition strategy? Thank you.
Speaker Change: There's one one who will never the crawling There's one one who will never the object There's one one who will never the One who will never recape I am taken by the surprise Oh, one, two, three, four, five, six, seven, eight, nine Can't reach it
Speaker Change: Thank you. I'll take the first crack and Yuning can add to it, please. I mean, we see this demand for credit remains high, but it's very uncertain market conditions.
and we
are focused on this.
Speaker Change: quality first, or quality over quantity strategy, which, yeah, makes it
a must to do great risk management.
Speaker Change: That's where you see, yeah, our results, yeah, are very encouraging.
Speaker Change: Yeah, going forward, we will maintain this strategy, but we are also working harder on, yeah, bringing in more higher quality customers with better quality products.
Yeah.
Yeah, reasonable customer acquisition cost associated.
with it. Yeah, so Yuning, please add to it.
[inaudible]
Thank you for watching!
Yeah, thank you, Andrew.
Speaker Change: So, yeah, I think we are expecting that in Q4 we are still...
Speaker Change: carry on our strategy in our customer acquisition strategy. As we are 100% online business model, so in this year we are in...
Speaker Change: to manage our risk level, so we will see how Q3 goes out.
Speaker Change: To summarize, I think we are still keeping a steady strategy and we are trying to acquire new customers at a reasonable price cost and trying to enlarge or expand our repeat borrowing pool. So that's the answer.
Thank you for watching!
Speaker Change: Yeah, the idea is we keep our risk management really robust.
Speaker Change: and try our best to grow and we have confidence we will have relatively high growth in the quarters to come.
Thank you for watching!
Thank you for watching!
Thank you. I hope that answers your question.
Speaker Change: Sure, sure. If the Congress knows... Yes, do you have any further questions?
Yeah, sure, sure, sure. Can you hear me?
Yeah, let me follow up.
Speaker Change: So it's encouraging to know that we are maintaining a healthy momentum and also to care for the risk management at the same time. Perhaps the next interesting aspect to look at is AI. Since we are seeing that you are increasing your investment in AI and hiring quite a number of professionals, could you explain what makes you competitive in the AI space, especially given that we have so many AI-native companies in the market? And could you also tell us more about the AI systems that will be commercialized, as you mentioned in your remarks? Thank you.
Thank you for watching!
Speaker Change: Thank you for the question. And so we are not an IOM company. We are an application of AI.
company position. So we have like use cases.
we have data.
accumulated through all the years.
Yeah, and so we are uniquely positioned.
Yeah, therefore, to really build, like, yeah, like credit.
related like models.
Speaker Change: insurance-related models. Yeah, so this is our edge as an AI application company.
And as I reported early on, AI models, yeah.
systems have been built.
Speaker Change: across our business from front end to back end. And so customer acquisition, marketing, intelligence.
Speaker Change: like risk assessment, like customer service, like collection, so on. Yeah, so many of the modules.
based on our preliminary market research.
Speaker Change: are very welcomed in the marketplace. Yeah. So we are working on monetizing these valuable assets. Yeah. Yuning, can you add to it?
Thank you for watching!
Yeah, Hangzhou. So...
Speaker Change: As we mentioned in the early calls, we have developed six major AI systems that support our business operations. I think some of them are quite mature in use in our day-to-day business. Some are in early development.
Speaker Change: for our business partners. Some can be used in our peers, some are maybe in financial institutions. We're trying to, well...
Speaker Change: The system actually, when they are developed, are mostly in-house use, but we are commercializing it to make it more useful in the market and trying to, well,
Speaker Change: develop business in our, especially in our peers and the financial institutions. I think we are going to see some progress in the near future, maybe in six to six months to a year.
Thank you for watching!
Speaker Change: Let me add two things, if I may. One is that, you know, finance-related, like, exchanges, yeah, interactions, yeah, need to be in many cases very precise.
So, we have proved it, yeah, in developing.
and utilizing AI models.
knowing that
Yeah, generative AI has certain shortcomings
Speaker Change: Yeah, so we use like an REG, so on, yeah, to mitigate that, but it's due.
certain models are still in the lab.
Ha, face.
and they haven't been...
Speaker Change: fully used, but many others are in greater, yeah, deployment stage and ready for deployment.
external
Speaker Change: commercialization. Secondly, I'd like to add that, yeah, the overseas markets.
can be quite good.
places for
Speaker Change: AI, yeah, because there is like China 5, 10, even 15 years ago. Yeah, so using AI we can just leapfrog.
Speaker Change: Right, like in China, we've experienced like, you know, internet, mobile internet, big data.
Speaker Change: Knowledge Graph, so on to AI, different phases of AI until today, generative AI, but in some overseas markets.
like in the Southeast Asia, in the...
Speaker Change: South America, so on. Yeah, so these markets are really, yeah, ideal for
Speaker Change: Of course, we will be careful also in terms of risk management compliance and so on. I'd like to just add these two points.
Thank you very much.
We hope that answers your question, Chris.
and thank you very much for your questions.
See you guys!
Speaker Change: Thank you. This concludes our question and answer session. If you have any further questions, please contact the company's IR team for assistance.