Hello, ladies and gentlemen, and thank you for standing by for Hexindai's Second Quarter Fiscal Year 2019 Earnings Conference Call. At this time all participants are in listen-only mode. After managements prepared remarks there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would then like to turn the meeting over to your host for today's call, to Ms. Daisy Wang, Investor Relations, Director. Please proceed, Daisy.

Thank you, operator. Hello, everyone, and thank you for joining our call today. Our earnings release was distributed earlier today and is available on our IR website at ir.hexindai.com. On the call today from Hexindai are Mr. Xinming Zhou, our Chief Executive Officer; and Mr. Johnson Zhang, Chief Financial Officer. Mr. Zhou will review business operations and company highlights, followed by Mr. Zhang who will review financials and guidance. They will be available to answer your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made under the safe harbor provisions of the U.S. Private Securities and Litigation Reform Act of 1995. These statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, potential, continue, ongoing, targets, guidance and similar statements. The company may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, the SEC, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Any statements that are not historical facts, including statements about the company's beliefs and expectations, are forward-looking statements that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include, but not limited to the following: the company's goals and strategies; its future business developments, financial condition and results of operations; the expected growth of the credit industry and marketplace lending, in particular, in China; the demand for and market acceptance of its marketplace's products and services; its ability to attract and retain borrowers and investors on its marketplace; its relationships with its strategic cooperation partners; competition in the industry; and relevant government policies and regulations relating to the corporate structure, business and industry. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the SEC. All information provided in this call is current as of the date of this call, and the company does not take any obligation to update such information, except as required under applicable law. It is now my pleasure to introduce our CEO, Mr. Xinming Zhou. Please go ahead, Mr. Zhou.

Thank you, Daisy, and thank you, everyone, for joining our call today. This quarter was certainly challenging for us and the entire P2P sector as the overall market environment shifts around us. The industry is gradually weeding out the firms who are financially weaker, fraudulent or unable to maintain compliance standards, leaving only the best or on demand [ph] throughout this turbulent period. Many investors are taking a cautious approach, preferring to remain on the sidelines until regulations are fully implemented and ironed out. A clear and definitive regulatory environment will have a positive impact on the industry and allow it to grow sustainably over the long term. One of the strategic preemptive steps we took during the quarter to stay one step ahead of the industry was to protect our existing investors. Leveraging our data analytics system, we saw demand for loan transfers growing as liquidity in the market. In response, we reduced new loan offerings on our platform and placed a priority on promoting loan transfer solutions [ph] to increase their liquidity and meet growing demand. As a result, net revenue during the quarter decreased 83% or USD 3.6 million from USD 21.2 million in the same period of last year, while total loan facilitated decreased 37% to USD 33.8 million from USD 273.6 million in the same period of last year. While our top line decreased significantly, these steps helped to strengthen confidence in our platform and the loyalty of our existing investors. The total amount of investments made on our platform during the quarter, which got some new loans facilitated and loan transfers, was USD 219.5 million. The proportion of the new loans facilitated to total investment amount was 15.4% for the quarter compared with 81.2% during the same period of last year. Investor participation in…

Thank you, Mr. Zhou. Hello, everyone. Thank you for joining our second quarter of our fiscal year 2019 earnings conference call today. Before I go through the numbers, please note that we recently announced that we have hired Deloitte as our new independent registered public accounting firm. Further details regarding the change in our auditing firm can be found on our IR website at ir.hexindai.com. Now I'll start with the financials of this quarter. We are delighted to accomplish this quarter despite of tough microenvironment and difficult industry situation. First, I'll go over some highlights. During the second quarter of fiscal year 2019, total volume of loans facilitated decreased by 87% year-over-year to RMB 0.2 billion or USD 33.8 million. The decline was primarily attributed to decrease in the number of borrowers, from 20,000 to 2,000. That's about USD 17.4 million in this quarter compared to a managed account of USD 12.7 million in the same period of last fiscal year. Adjusted net loss attributable to the company's shareholders which, in the range of guidance, was USD 12.5 million in the second quarter of fiscal year 2019. Now I would like to walk you through more details on our financial results during the second quarter of fiscal year 2019. As I mentioned, net revenue was USD 3.6 million, a decrease of 83% from the same period last year. The decrease was primarily due to the significant decrease in the volume of credit loans facilitated through our marketplace, which decreased from USD 265.6 million or RMB 1.8 billion in the second quarter of fiscal year 2018 to USD 33.8 million or RMB 0.2 billion in the same quarter of fiscal year 2019. Operating expenses were USD 21.1 million, an increase of 222% from the second quarter of fiscal year 2018. The…

[Operator Instructions] Our first question comes from the line of Alex Ye from UBS. Please ask your question.

Hi, good evening. Thanks for taking my questions. I have three questions from my end, if I may. So the first question is regarding the latest progress on the national compliance check. So I understand that, of course, you're [ph] already close to completing the second phase of compliance check. So just wondering, what are the next time line or expected date of completion of the third phase are you currently expecting? Do you still expect it to be finished by the end of this year? And my second question is regarding the investor side. So given there has been some industry news that the regulators are considering forced shutdown on some small-sized P2P platforms, well, I wonder if this will cause another round of investor panic and what's your view on this? And finally, about your guidance for the next - upcoming two quarters. So we see that there's a - for the quarter ending March of 2019, we are expecting our loan volume to resume back to normal business and - compared to where we, like, declined in these two quarters. So I'm wondering, what are the underlying scenarios we are assuming for this guidance? Thank you very much.

Thank you, Alex. Regarding to the - your question about the timetable for the regulation, the government inspection process is scheduled to be completed by the end of this year. But it is [indiscernible] so if there are any licensing [ph] it will be issued at a very clear timetable. And the cleanup of un-complianced peer-to-peer companies will be the government's focus in the first half of 2019 and is expected to be completed by the end of 2019. In the second half of 2019, peer-to-peer platforms that have a successful - successfully passed the compliance inspection will be permitted to finish filing registration. Lastly, a national list of successful registrations who filed will be - come up. And regarding your question, the government would like to set up some more options to peer companies if - no matter how regulations are added, but we believe that this industry have already concentrated to the platforms, as well as we are one of the companies who also benefit from the regulation. And the regulation -- the final target of the regulation is to create a more healthy and sustainable environment for this industry. And your question regarding to our guidance, we have already decreased our full year guidance according to the environment. As our CEO mentioned, that the demand of the -- from the borrowers' side is still strong. And we believe that the demand is really a key factor to drive the transition to industry growth, and we are focusing on the medium-sized consumption loans. Our target customer is emerging middle class with stable job and stable income, which targeted customers have a lighthouse [ph] impact to the micro economy. And the [indiscernible] that we decreased our guidance is considered from the lenders' side, when the lenders are more -- lenders are conscious [ph] to invest in the following quarters. That way, we decreased our volume and revenue guidance for the full fiscal year. But as for the long term, we believe that after the investor recover their confidence, this industry will be -- growth will be more modest. And as one of the top companies in this industry, will be also benefit from it.

Thank you very much.

Your next question comes from the line of Patricia Cheng from CLSA. Please ask your question.

Thank you. I have two questions. The first one is about borrowers. Have you changed any underwriting criteria or like have you seen any like changes to the loan approval rates? And then related to that one is about delinquency, how is that one trending? And your outlook for the coming quarters as the industry continues with the cleanup. And then the second question is on investor profile. The total invest - the number of investors usually are much less than the drop in your loan facilitation. Has there been any change of your investor profile or like the size of the investments? Thank you.

For the long-term, we have a strategy of our - risk management strategy. When the economics are booming [ph], we are more aggressive to facilitated more borrowers, for [indiscernible] and equity; and when the economics are going in recession, we are more conservative for - facilitated more would-be borrowers to control our risks. And for the last quarter, we have already shifted our - or facilitated to - facilitated more would-be borrowers to control our risk. And meanwhile, we - our past due rates, however, have been going down. It's not only we apply more strategically, a carrier [ph] for approval of borrowers, but also, we have extended our channels. Our - we have extended our channels from off-line to online and we began acquiring borrowers through a variety of new channels, which resulted in a larger and a more diversified number of applications and decrease in our approval rates. As I mentioned before, we are focusing on the medium sized consumption loans. With didn't see our delinquency rate or default rate has been increased significantly. The aggregate default rates is still in our range of expectation.

Our next question comes from the line of Patrick Fisher from Creation Investments. Please ask your question.

Yes, hello. Good evening. Clearly, it was a very difficult quarter and I'm sure your whole team was working overtime. I'm wondering - I have two questions, wondering about your cost control on your expenses - employee expenses, given the volatility of the market and the difficulty of placing and getting new liquidity, wondering how you're going to control costs to align with the lower income targets, or if that's possible or if all those expenses are really related to replacing investors that are leaving just as much is needed to increase investors coming in. And my second question has to do with the loans receivable on the balance sheet. It grew significantly from $28 million last year to now $56 million current, with also $16 million non-current. Could you describe those loans and what you're doing to get those turned into cash? It's - yes, I wonder what they're doing on the balance sheet growing in that manner? Thank you.

Regarding to your first question on our - how do we cost control during the environment? We have already decreased some of the building expenses, directing it to our brands, but shifting more self-marketing expenses to the channels, which could have higher investor attractiveness. And for your second question regarding to our balance sheet, I think that the current and the non-current effect is kind of refocusing [indiscernible] of our loan receivable. We maintain our online micro-lending balance at a level of RMB 700 million or in terms of USD 70 million, current and non-current. Did that answer your question?

Yes. Could you describe what measures are being taken to collect the $16 million that's past due? Or how past due it is or how likely it would be that, that will result in a loss for the company? Were you able to hear my question?

Yes. All of the borrowers for our micro-lending business is a higher-level - higher grades. And from when we started online micro-lending business until now, we have no delinquency. All of the borrowers paid the interest on time. We are confused with the non-current and the past due. Non-current, that means duration of the loans are longer than one year.

Longer than 1 year. Yes. Okay. Thank you.

[Operator Instructions] Your next question comes from the line of Nicki Chen from Essence Securities. Please ask your question.

Hi, management. Thanks for taking the questions. I have two questions. First one is can management share your thoughts on when will the industry recover and when will your company's growth and earnings recover to the normal level? And the second question will be, could management share any color on your margin trend in 2019? What's your strategy regarding marketing and how it counts for the next year? Thank you. Could you hear my questions?

Yes. [Foreign Language]

For the industry, we think that we'll see general recovery in the second half of next year 2019, after the policy becomes clearer and the regulations become implemented.

[Foreign Language]

For Hexindai, as a publicly listed company and an industry leader, we expect the recovery of our business to happen earlier in the first half of next year.

I'll answer your question regarding to the margin trends. As we mentioned in the previous earnings call, our APR attached to the borrowers will be maintained as the same as before, but our yield rate provided to the lenders will be decreased in the long-term. I mean, in the future two years, our yield rates to the lenders will be - still have 5% to 6% decrease. Those kind of decrease will shift to our own revenue. That way, for the long term, our margin is going to be increased. But for the short term and in the recent last two quarters, our margins will be decreased. That's mainly because of - we have to do more promotion to attract more and more lenders and provide even more cash incentives, which will decrease our recent [ph] market in the future, well, our two quarters.

Okay, thank you.

[Operator Instructions] There are no further questions at this time. I would like to hand the conference back to today's presenter. Please continue.

Thank you again for joining us this evening. While this quarter was challenging, we remain very optimistic about our future business prospects such as key steps we took this quarter to maintain investor loyalty, and increased trust and confidence in our platform will lead us ideally positioned to capture the wider market opportunities. And I'm confident in our strategy and our ability to execute, and I look forward to updating you next end of quarter on the progress we have made.

Thank you, Mr. Zhou. In closing, on behalf of the entire Hexindai management team, we'd like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting us in China, please let us know. Thank you for joining us today. This concludes the call.

Ladies and gentlemen, that just concludes the conference for today. Thank you for participating. You may all disconnect.