Hello, and welcome to the LexinFintech's Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce IR Director, Mandy Dong.

Thank you. Hello everyone. Welcome to Lexin second quarter 2023 earnings conference call. Our results were issued earlier today, and it can be found on our IR Web site. Joining me today are our CEO, Jay Xiao; President, Jared Wu; and CFO, James Zheng. Before we get started, I'd like to remind you our Safe Harbor statement and our earnings press release, which also applies to this call. During the call we may refer to business outlook and the forward-looking statements, which are based on our current plans, estimates, and projections. The actual results may differ materially, and we undertake no obligation to update any forward-looking statements. Unless otherwise stated, all figures mentioned are in RMB. Jay will first provide an update on our overall performance. James will cover the financial results in more detail. And lastly, Jared will then discuss risk management. I will now turn the call over to Jay. His remarks will be in Chinese. And the English translation will follow.

[Foreign Language] Hello, everyone. It's my pleasure to share with you our performance for the second quarter of 2023. In the current macroeconomic environment we have achieved another strong quarterly results by adopting a prudent business approach. Loan volumes for the second quarter was RMB63.9 billion, up 30% year-over-year, once again exceeding the high end of our guidance. Loan balance reached RMB114.1 billion, up 32% year-over-year. Revenue was RMB3.1 billion, up 27% year-over-year. Net profit was RMB356 million, up 112% year-over-year. [Foreign Language] In the second quarter we adhered to the two main focuses of risk and data, pushed forward more refined operations, iteratively upgraded user risk identification systems, and improved the quality of new assets. The e-commerce business grew rapidly. And the synergies with the main consumer finance business got further enhanced. We have achieved solid business growth for the five consecutive quarters, with profitability and cash flow improving significantly. In addition, we attached great importance to compliance capability-building and successfully completed the stage-by-stage credit reform which was to disconnect with financial institutions in Chinese [Foreign Language] as scheduled in accordance with the June 30 end-day compliance requirements. [Foreign Language] There were three highlights of the second quarter results. [Foreign Language] First, we further refined operations to optimize asset structure and increase the proportion of high-quality customer segment. In the second quarter, we continued to iterate and hone our models to strengthen our risk identification capabilities, and improve the accuracy of user identification. In terms of existing customer operations, thanks to our improving capabilities, marketing efficiency reached a higher level in the second quarter. Marketing efficiency increased by 16%, while telemarketing costs decreased by 39% sequentially. In terms of the operation of settled users, the order rate of the re-approved users in the same month increased from 40% to…

Thank you, Jay. I'll now provide more details on our financial results. Please note that all numbers are in RMB unless otherwise stated. The second quarter marked our fifth consecutive quarter of rebound since we bottomed out from the trough in Q1 of last year. We delivered another quarter of healthy growth both in overall operating and financial numbers. This is not an easy achievement amidst the relatively mild consumption recovery in the second quarter. Thanks to our continuous efforts on reconstructing risk management capabilities, upgrading to a better customer base, refining the operations and cost optimization initiatives. We believe we have planted the right seeds by undertaking the above mentioned strategies and expect to reap more benefits of such improvements in the coming quarters. First, please let me elaborate at a high level on what happened in this quarter as compared with the same quarter of 2022. Total loan originations for the quarter reached RMB63.9 billion, an increase of 30.1% year-over-year, beating the high end of Q2 guidance we gave earlier. Revenue grew by 26.6% year-over-year to reach around RMB3.1 billion for the quarter, which was mainly driven by the GMV growth and the increased loan balance, which reached RMB114 billion. As a result of our customer base upgrading, better quality customers usually generate larger ticket size loans, hence contributing the GMV growth. The strong revenue growth was achieved despite the fact that the weighted average APR fell below 24% in Q2, around 1 percent point lower than a year ago. Loans with APR under 24% now made up over 86% of all loans, more than 5% higher than one year ago. Another contributing factor was the funding cost which stood at 6.6% during this quarter, a decrease from 7.2% a year ago as the corporations with new funding…

Thank you. [Operator Instructions] And our first question comes from the line of Frank Zheng with Credit Suisse.

[Foreign Language] Thank you, Management, for giving me the opportunities to ask questions. I have two questions. The first one is on the outlook for various operating metrics in the third quarter as well as in the second-half. How is the credit demand in July and August in view of the macro headwinds? And the second question is around asset quality. As mentioned previously, due to the change in loan collection industry there are some fluctuations in asset quality. What's the impact so far, and also could Management share more updates on future outlook of asset quality. Thank you very much.

[Foreign Language]

[Foreign Language] I'd like to add a little more. Basically, in view of the uncertainties in the macro situation, we're going to stick to our original early-of-the-year guidance of RMB245 billion to RMB255 billion GMV growth. That represents 20% to 25% year-over-year growth. As a matter of fact, while we have completed the first-half of the year already, if you look at the numbers we have achieved 35% year-over-year growth up to this point. So, that means if we look at the whole year of 20% to 25%, for the second-half we'll be looking at basically a GMV growth of high single-digit to probably mid teens growth into the GMV. And really this is because we are adopting a very prudent kind of approach in terms of the business growth. We would like to kind of more overlooking at stabilize the overall scale, the overall GMV growth. But really put the risk management and also the net income, the overall profitability as the first priority where we go with our operations for the second-half.

Okay, so, Frank, I'll do the translation for Jay for the first question. We do still, like James said, we expect the full-year guidance to maintain within the range of RMB245 billion to RMB255 billion. And I think this year, as of right now, the macro recovery is not too optimistic as we were hoping to or expecting for the - earlier this year. And then we're actually consciously controlling our increase in pace. And right now, depending on the macro environment, right now we are taking a more prudent business approach. We're focusing more on profitability and as our priority. And for the second-half, [it would be just] (ph) the increasing pace of our business mentioned really depends on the macro recovery conditions. And from the company's operational level, the demand growth in July and August is more or less similar to the second quarter. And we don't see a very strong recovery trend. So, the third quarter will be more on reasonable growth, again focusing on profitability. And it will remain more or less stable. [Foreign Language] In terms of your second question, as I mentioned before, with the macro economy being down a little, it puts some pressure on our asset quality. In the second quarter, with the known industry impact from certain collection issues having with the certain collection companies, we did bear some burden. It did impact our collection rate or further collection rate, but we are having -- putting on more efforts improving on our new assets -- asset quality. As we mentioned earlier in our script, the overall asset quality for our new assets are actually improving. And then it in turn reflected on a lower further collection rate. And it kind of evened out the overall data. In the future, with the macro not being in the recovery [technical difficulty] we were hoping to, there will still be some challenge on our risk level. But we're confident as we input we're taking in more good-quality new assets, the overall asset quality will get better. And I hope that answer your question, Frank?

Thank you. [Operator Instructions] And our next question comes from the line of Alex Ye with UBS.

[Foreign Language] So, my first question is on the e-commerce business line. So, management has mentioned in the remarks that the business line has to grow rapidly in Q2. Can you elaborate a bit more on the drivers and your future plan on this business? Second, there is some mentioning about the e-commerce business line being a part of the Lexin ecosystem. Could you tell us or get some color on the update on Lexin's consumption ecosystem as a whole? Thank you.

[Foreign Language] So, probably we've been focusing on high-quality and potential users. And for the last quarter, we have -- will continue to expand our category and introduce high-quality merchants as well as increasing of categories to fit better to our targeted audience. And also, we've been leveraging on the 618 e-commerce shopping festival. And we've increased our operational efforts and our promotional range, that which resulted in a very remarkable result. And a more fundamental reason is that we're [actually rooted] [technical difficulty] today we're rooted in the consumer genes of the Lexin Group. We have created a consumer ecosystem that's centered around good-quality, high potential users. And the synergies between e-commerce and business and our consumer finances have been further strengthened. And they mutually encourage each other. And specifically, our e-commerce platform actually helps us when it comes to customer acquisition as well as revitalizing the already settled customers that's creating synergies between two platforms and business. [Foreign Language] So, Lexin started from the installed e-commerce business, which gradually build up Lexin's market segment consumer ecosystem, which includes consumer finance as the main business, accompanied by the installment e-commerce business, [program] (ph) offline customer acquisition finance business, the SaaS business for financial -- for providing businesses to financial institutions and innovative business, which is a multi-business line and a all-round ecosystem of providing credit services to customers. And as we just introduced -- or prior the progress of our e-commerce business in the second quarter, our SaaS business for financial institutions and our [program] (ph) offline team business are developing steadily as expected, and accordingly to our plan. And we believe that we will have a more scalable and more notable business -- more significant results to actually share with you in the future. Hope that answers your question, Alex?

Sure, thank you.

Thank you. [Operator Instructions] Your next question comes from the line of Yada Li with CICC.

[Foreign Language] Then, I will do the translation. Hello, management. Thank you for taking my question. My question is about can management elaborate more about the reason on improving the dividend policy under current consensus. And are there potential impacts on the company cash flow? That's all. Thank you.

Okay, I'll attack this question. In view of the macroeconomic uncertainties, obviously we are maintaining a very prudent approach in terms of business growth. So, we are basically trying to look at more stabilized -- stabilizing the overall kind of a scale, but really put the focus on risk management and profit. So, basically if you put more focus on risk management and profit, this will actually generate more profit. So, we continue to see the growth in profit activities. Plus, we continue to take cost optimization initiatives as one of our long term initiatives. This will also lead to higher profitability down the road. So basically, the cash flow from operation is sufficient and robust to support future business expansion. And as we announced earlier of the year, we also have kind of restructured our original convertible bond with a PAG. So, the payment to the PAG actually is not an issue for us anymore. As a matter of fact, we have paid half of the original convertible bond amount. So, it's cash sufficient. And, we feel that dividend really is a more direct and tangible way to reward the shareholders at this time. So, that's why the Board has approved our plan to start giving out dividend on a semi-annual basis in the range of 15% to 30% of the net income as a recurring policy. So, really this underscores the overall management's confidence in the operations of the business. So, hopefully, this answers your question, Yada.

Well, thank you very much.

Thank you. I'll now hand the call back for any closing remarks.

Okay. Thank you, everyone, again for joining us today. If you have further questions, please contact us via our contact information available on our IR website. Thank you everyone.

Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And, you may now disconnect.