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Edited Transcript of LX.OQ earnings conference call or presentation 17-May-19 11:00am GMT

Q1 2019 Lexinfintech Holdings Ltd Earnings Call

May 24, 2019 (Thomson StreetEvents) -- Edited Transcript of LexinFintech Holdings Ltd earnings conference call or presentation Friday, May 17, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Huanian Liu

LexinFintech Holdings Ltd. - Chief Risk Officer

* Tony Hung

LexinFintech Holdings Ltd. - Investor Contact

* Wenjie Xiao

LexinFintech Holdings Ltd. - Chairman & CEO

* Yan Zeng

LexinFintech Holdings Ltd. - CFO & Director

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Conference Call Participants

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* Eddie Leung

BofA Merrill Lynch, Research Division - MD in Equity Research and Analyst

* Jacky Zuo

Deutsche Bank AG, Research Division - Research Associate

* John Cai

Morgan Stanley, Research Division - Research Associate

* Wen Li

Goldman Sachs Group Inc., Research Division - Research Analyst

* Xiaoxiong Ye

UBS Securities LLC - Equity Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to LexinFintech First Quarter 2019 Earnings Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today.

I would now like to hand the conference over to your first speaker today, Mr. Tony Hung, Senior Director of Capital Markets. Thank you. And please go ahead.

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [2]

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Thank you, operator. Hello, everyone, and welcome to Lexin's First Quarter 2019 Earnings Conference Call. The company's results were issued earlier today and are posted online. Joining me today on the call are Mr. Jay Xiao, our Founder, Chairman and Chief Executive Officer; Mr. Craig Zeng, our Chief Financial Officer; Mr. Ryan Liu, our Chief Risk Officer; [Mr. Stanley Tsao], our Senior Financial Director; and other members of our team.

For today's agenda, Mr. Xiao will provide an overview of our recent performance and highlights. Mr. Zeng will discuss our financial results, and Mr. Liu will discuss our credit performance.

Before we continue, I'll refer you to our safe harbor statement in the earnings press release which applies to this call as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in renminbi.

I will now turn the call over to our CEO, Mr. Xiao, whom I will translate for.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [3]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [4]

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[Interpreted] Hello, everyone. I'm very pleased to announce to everyone that, thanks to our 3 core strengths of consumption scenarios, financial technology and diversified funding, we've begun 2019 on a strong note with very strong results and growth. In the first quarter, our non-GAAP EBIT was CNY 742 million, an increase of 197% year-on-year. Our net income was CNY 583 million, an increase of 228% year-on-year. This is our sixth consecutive quarter of strong growth since our IPO.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [5]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [6]

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[Interpreted] Continuing our strong growth from the fourth quarter of last year, in the first quarter, our financial technology revenues continued to grow rapidly, becoming now Lexin's #1 source of revenues. This has been accomplished through Lexin's early adoption of AI in every part of our business and our industry-leading financial technology capabilities.

Through the use of big data and AI, Lexin has substantially increased the efficiency of every facet of our business, whether it's in product recommendation, risk management or operations, while, at the same time, reducing costs and risks. Currently our use of complex networks, address analysis, LBS information, customer behavior patterns, sentiment analysis, voice recognition and multiple forms of machine learning have also achieved an industry-leading position.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [7]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [8]

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[Interpreted] As recognition of our leading position and capabilities, we once again expanded our cooperation with financial institutions, increasing the number, the scope and the depth of our cooperation with our funding partners. Recently, we signed strategic cooperation agreements with ICBC, Minsheng Bank and over 10 other large national banks, insurance companies and consumer finance companies covering areas including financial technology, smart customer acquisition, payments, risk management and multiple other areas. Today, our institutional funding partners number over 100.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [9]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [10]

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[Interpreted] In light of the fact that the post-'90 and post-'95 generation in China is becoming increasingly the country's leading consumer demographic, China's consumption will rapidly upgrade and usher in a new age of new consumption. New consumption will become a primary driver of the economy. While consumption now already accounts for 76.2% of China's recent growth in 2018, it still only occupies a small portion of China's GDP.

There's still a substantial gap between China's consumption levels and more developed markets. Only by embracing this mega trend of new consumption will we be able to achieve strong growth. And within this trend, the consumption needs of educated young adults will form a core part of China's future economic growth. In order to better serve the ever-changing needs of our educated young adult customers, we have adopted our strategy for new consumption and began our Le Card and membership privilege products with consumption at the core and with an expansion of services.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [11]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [12]

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[Interpreted] We are full of confidence in our future. In spite of macro uncertainties, consumption will continue to be the foundation and main engine of China's growth. Lexin has been built to grow with China's new consumers, and we are confident that as we grow the new primary consumers in China, we will obtain even greater opportunities.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [13]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [14]

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[Interpreted] Next, I'd like to invite our CFO, Craig, to discuss our recent performance.

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Yan Zeng, LexinFintech Holdings Ltd. - CFO & Director [15]

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Thank you, Jay, and hello, everyone. I'm pleased to announce that we have again -- once again delivered strong results. In the interest of time, I will not go over line item by line item of our financials. For a more detailed discussion of our first quarter 2019 results, please refer to our earnings press release.

Total operating revenue for the first quarter 2019 reached RMB 2 billion, driven by strong growth in our financial service income. Adjusted net income was RMB 622 million, an increase of 203% from the same period a year ago, reflecting our continuing strong growth and performance. Net income per ADS for the first quarter 2019 was RMB 3.22 on a fully diluted basis. Non-GAAP fully diluted net income per ADS was RMB 3.44. We continue to see the future potential of our business model in the performance of the customer cohort whom we acquired in the first quarter of 2015 whose balance has now risen to over RMB 13,400 and whose 30-day delinquency rate is still approximately 1% with a stable level of quarterly active rates at 38.9%.

Our operating leverage continued to improve. Operating expense as a percentage of average loan balance decreased to 4.5% in the year-to-date versus 4.6% for 2018. Non-advertising marketing, advertising, G&A and R&D was 1.31%, 1% and 1.2% of average loan balance, respectively.

We currently have 42.2 million registered users and 11.6 million customers with credit lines, up from 8.2 million as of March 31, 2018. We acquired nearly 705,000 new active customers in the first quarter. Overall, our average credit limit is approximately CNY 8,200 while our tenor has increased to 12.5 months. Our weighted average APR was at 26.2%.

In terms of our funding, for the first quarter, approximately 29% of our funding for new loan originations came from our Juzi Licai platform, and 71% of our funding for new loan origination came from our institution funding partners.

For our guidance, we fully expect to -- continue to expect strong growth and believe we can reach our guidance of RMB 90 billion to RMB 100 billion in new loan origination for 2019.

Next, Ryan will discuss our credit situation. Ryan, please.

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Huanian Liu, LexinFintech Holdings Ltd. - Chief Risk Officer [16]

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Thank you, Craig. We continued our strong credit performance in the first quarter of 2019. In spite of the micro -- macro environment, we do not foresee any significant change in our credit quality that is outside our range of expectations. Our credit quality continues to be high, and we expect our credit statistics and the charge-off ratio remain at the same levels.

Our 90-day delinquency ratio remains low at 1.42%, and we continue to see strong credit performance as our lifetime charge-off ratio is just over 2%. We fully expect our strong performance to continue for the full year of 2019.

With that, I conclude our prepared remarks. Operator, please proceed.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Jacky Zuo with Deutsche Bank.

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Jacky Zuo, Deutsche Bank AG, Research Division - Research Associate [2]

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(foreign language)

Let me translate the question. So first one is about our strategy for the membership benefits. So can you give us some more color about this initiation? And I also observed we have Le -- Black Card, which is a paid membership. Can you also give us some elaboration of this membership? And what kind of benefits we can provide? And also I've observed that the loan duration actually shortened to 12.5 months in the first quarter. So is this related to the new product or new service we provided to the borrowers?

And second question is about the sales and marketing expense. I've observed that the sales and marketing expense is still at relatively high level, similar as Q4 last year. But then, if in terms of -- average new borrower cost has declined a little bit versus Q4. So can you give us some color for the outlook in terms of sales and marketing cost? And do we have some plan for -- or new plan for the customer acquisition?

And thirdly is about the regulation update. So on one hand, we want to get some color for the P2P trial registration progress. And also secondly, we heard that there's some news on the online lending license, which may be provided by the CBIRC or PBOC. So -- and also it may loosen the leverage ratio for the online microlending license. So do we have some plan to get the lending license and maybe start to do the on-balance sheet lending model?

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [3]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [4]

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[Interpreted] So Jacky, I'm going to answer your first question and your third question. So first, with regards to your first question, as mentioned earlier in the call, we've begun to make many adjustments and improvements to our systems. In the past, we've been doing consumption plus finance and we have established ourselves as a clear leader in this field. We're the leading platform here with over 10 million users or over 10 million people with credit lines. However, as you know, the active customers tends to be about 3 million or so. Now the remaining 7 million, it doesn't mean that they're not active out there engaged in some form, for example, in consumption. And in particular, it is in this area that we want to increase our engagement with our customers and also provide them with additional services.

So towards this end, there's a few areas, 3 in particular. We certainly like to continue to provide them with additional financial services. We would like to provide them with more consumption scenarios. And also, we're working with various partners to also provide them with consumption benefits. And this is something that we're actively exploring. Also, as you mentioned, that there is the Lehei or the Black Card, which for -- those who have been watching our products carefully know that we've already established it quite firmly. In fact, the Black Card is beginning to reach scale. And as it reaches scale, in the future, we may be providing more details, but perhaps that's a bit much later.

For the Black Card, this is a membership card where there is an annual fee of about RMB 199. There's many external benefits that are connected with it, whether it's better access to online video channels, hotel discounts, movies or other entertainment options. But ultimately, all this is about engaging with the customers more, especially in their consumption and having more and more of their consumption to be related and connected to us in some way.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [5]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [6]

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[Interpreted] So overall, right now, in terms of the regulatory situation, for example, on the P2P, there's no new developments or at least no substantial new developments. There's earliest drafts or documents that have been, if you will, leaked or tossed out there or different news that have been referred to, but there's nothing new that is substantial or concrete per se. But safe to say that whatever needs to be done, we've done it already, and we're very well prepared to do whatever else the government will require us to be done on this. We've definitely been a clear leader in being more compliant and being forward-thinking and being aware of what the government will want.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [7]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [8]

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[Interpreted] So Jacky, on the assisted lending and loan facilitation part, it's very much consistent with what we just said as well earlier on P2P regulations as a whole, which is that there may be news out there, there may be things that, for lack of a better word, are leaks, et cetera. But there's nothing substantial that has come out. There's certainly no new substantial developments. We see some of the news that you see and are referring to. We're certainly fully aware of them.

Now I think it's important to emphasize that at this point and how we approach our business, we don't rely on any particular license. That's not the key or the focus to our business. The key and the focus to our business is we work with the licensed institutions and we enable loans and transactions to occur. And that is very much our core strength. Now overall, if there is something that is a good opportunity, if there is, if you will, an appropriate license, we certainly wouldn't exclude the opportunity. We would definitely consider it. If it would help us develop, help us with our customers, certainly, that's something that we would look at.

On the micro loans specifically, we do have the license, and it has been helpful. We have used it. But really, it's helped us more in talking to other institutions than anything else. At the end of the day, we're a financial technology company. And again, in the core and in terms of what our business really is, it's working with the licensed financial institutions and facilitating and enabling things with them.

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Yan Zeng, LexinFintech Holdings Ltd. - CFO & Director [9]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [10]

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[Interpreted] So Jacky, on the customer acquisition, I guess it's first worth pointing out that, first and foremost, our goal has always been to acquire the high-quality customers. So while I'm sure nobody would mind having lower sales and marketing costs, the goal would definitely not be to just lower the sales and marketing cost per customer, the customer acquisition cost for the sake of lowering it. Our ultimate goal is -- as I think everyone can understand, is to get more of the high-quality customers. And if we see an opportunity, if we see a window, then why not spend more on customer acquisition?

And depending on the market situation and environment, we'll certainly try different methods. And it really depends on the situation at the time. And hence, I would say that, ultimately, it depends on how the opportunities present itself. But our goal again is to get as many high-quality customers as we can. And if the opportunity does present itself, then there's no reason why we shouldn't do that. And it's also worth noting that ultimately, our sales and marketing isn't that high per se. So it's already at a pretty low level. Even now that it's higher, it's probably not that high. So I hope that answers your question.

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Operator [11]

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Our next question comes from the line of Eddie Leung, Chang Li and Miranda Zhuang with Bank of America Merrill Lynch.

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Eddie Leung, BofA Merrill Lynch, Research Division - MD in Equity Research and Analyst [12]

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(foreign language) So my question is out of the loan origination target of CNY 90 billion to CNY 100 billion, how much will come from new customers? And will the proportion be different than in 2018? And if so, what could be the indication on our sales and marketing expense thus far?

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Yan Zeng, LexinFintech Holdings Ltd. - CFO & Director [13]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [14]

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[Interpreted] So Eddie, I'm sure you understood that, in the past, historically, there's always been 2 engines for our growth: our new customers and our existing customers. And the growth of our existing customers and the growth in loans from that has been predictable. But for this year, the new customers will definitely make up an increasing proportion versus the past. And this is in no small part to the fact that, in the past, we've been constrained quite often by capital and by funding. Now that we're less constrained, we can look forward to some of these things. So hence, a lot more of that will be driven by our new customers.

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Operator [15]

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Your next question comes from the line of Alex Ye with UBS.

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Xiaoxiong Ye, UBS Securities LLC - Equity Research Analyst [16]

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(foreign language) So I will probably translate my question. So the first one is a follow-up on our strategy to acquire more of nonfinancial service customers, which we will offer them with some consumption scenarios. So I'm wondering, would there be any new customer acquisition channels? And how would that affect our future customer acquisition strategy?

And my second question is about our funding partners. So we have signed a few strategic cooperation agreements with a dozen of the leading national banks. So I'm wondering if any increased scope of cooperation with these funding partners. What was the difference in these partners when compared to other types of new partners?

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [17]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [18]

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[Interpreted] So Alex, with regards to your question, I guess it's first worth pointing out that, as you know, for us right now, cash is definitely abundant. We've built out a very, very strong institutional funding base. And as a result of that, you can say that we have a positive problem. Our existing customer base, our asset base, therefore, can't meet the needs of our funding partners who now have an excess of requirement, excess of our asset side. So as a result of this, a lot of our efforts now, as you know, have now shifted to customer acquisition. And as part of that, it means, of course, working with various partners to facilitate the meeting of consumption needs of our customers and other future potential customers.

Now this is mainly working with, for example, other e-commerce platforms, including more integrated e-commerce platforms as well as exploring various other channels. And as Craig mentioned earlier, our sales and marketing expense hasn't really been high at all. So we definitely have some leeway on this. But ultimately, we are definitely going to have to and we are going to seek to grow our customer base, and it is through these methods. And if you're wondering if the channels or the methods therefore may change, definitely, the methods will change. We will try different things. We will definitely investigate different opportunities. And at the core of it, I mentioned earlier, we have millions of our customers or millions of our customers with credit lines that right now we could probably engage with better, that are not using our products as much as we would like. And that's something that we definitely want to improve upon.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [19]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [20]

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[Interpreted] So with regards to the cooperation with our partners, to follow up, as we alluded to earlier from our partners conference, overall, it's clear that we're engaging more with our partners. There's more complete, more in-depth, more detailed cooperation, whether it's on customer acquisition, whether it's on the management of the accounts and the systems and even integrating our system with their system. We're assisting the banks in issuing loans and issuing credit. We're basically integrating their systems with ours.

And with regards to the integration, it perhaps should be emphasized, that's going to differ from bank to bank. That's not going to necessarily be one particular method of cooperation. And we have to explore with each bank what exactly the level of cooperation should be. Hope that answers your questions.

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Operator [21]

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Your next question comes from the line of Lucy Li with Goldman Sachs.

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Wen Li, Goldman Sachs Group Inc., Research Division - Research Analyst [22]

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(foreign language) The first question is a follow-up on the bank funding. We note, as mentioned by the management earlier, we recently signed a strategic partnership agreement with big banks, including ICBC and Minsheng. So I wanted to check if there's any trends in terms of the funding cost for -- especially from the banks. Do we see a lower funding cost now or going forward? So would the funding costs from the institutional investors be significantly lower than the P2P costs going forward?

And then secondly is on the APRs. We noticed that sequentially the APRs in 1Q is slightly higher than it was in the previous quarters. So I wanted to check if we are focusing on slightly less prime customer cohort? Or is it a result of product mix shift? Or we are simply charging the customers more?

And thirdly is on overseas opportunities. For example, some of our peers are looking at overseas opportunities, including virtual bank licenses in Hong Kong. So do we have any plans in this area?

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Unidentified Company Representative, [23]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [24]

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[Interpreted] Lucy, I guess for the overall situation, first, with regards to the banks and the decrease in costs and the -- P2P costs, increasing the cooperation with the banks, without a doubt, definitely helps lower the costs. But it's a process and it's a process that takes time and will occur over time. So definitely, the costs should be coming down. But it definitely won't be something that occurs very quickly per se.

Now on the P2P costs, P2P isn't expensive for us, as you know. It's maybe around 8% or so, sometimes a little above, sometimes a little below. Of course, the banks per se won't be very cheap neither especially versus the P2P. But of course, ICBC, et cetera, can be cheap, but ultimately, it really depends on the situations.

On your second question on the APR. I guess part of this has to do with the calculation and how we calculate it now and in the past. The current effective APR calculation, what I think we would like to emphasize is that the APR is, in fact, stable. Now some of this is a reflection of higher cost of capital in the past. So in the past when we've had higher cost of capital, we've had in turn, of course, higher APRs reflected in that to our customers. But overall, it's definitely stable. Now I would also be remiss if I did not say that part of this is a reflection of some of our new customers and our new assets. But overall, what we would like to emphasize is that the APR as a whole is definitely very much stable.

With regards to overseas opportunities, we're definitely very much paying attention. We are definitely looking at various different possibilities, different things that we can do. Currently, we're exploring several opportunities, and if there's anything material or important that emerges, we'll be sure to report to everybody very quickly. Thank you.

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Operator [25]

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Our last question comes from the line of John Cai from Morgan Stanley.

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John Cai, Morgan Stanley, Research Division - Research Associate [26]

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(foreign language) I will translate my questions. So I have 4 questions. The first question is a follow-up on the tenor. So I just wonder, in the first quarter, the tenor gets shorter as compared to the fourth quarter. Is there any reasons behind that?

So the second question is about funding partner cooperation model, I think there's some non-guarantee cooperation model. Just wondering what's the mix now and what's the trend towards the end of this year.

And the third question is more about the strategic focus on consumption. I think we are now becoming more focused on consumption scenarios and benefits. Just wonder what that -- how would that impact our financials in terms of sales and marketing. And by providing this benefit to the memberships, thus Lexin will incur some like upfront costs or we have some cooperation agreement with those channels that can be basically breakeven. And I also wonder, the strategic shift kind of like a little bit away from consumer finance, what's the rationale behind that? Because we are still a small player in the consumer finance segment.

And the final questions is about the room to further increase the existing customers' credit line or outstanding balance because I've seen the 20-F, they have already reached around CNY 9,000 per -- outstanding balance per borrower, indicating that -- I mean based on historical cohort, that might indicate that they have -- they underperformed for like maybe more than 2 years. Just wonder how much room we see to further grow that balance. And maybe how do we plan to retain them? What would be the retention cost?

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Unidentified Company Representative, [27]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [28]

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[Interpreted] So John, regards to the first question, the tenor was shorter. Well, it does depend on the customer, but it also depends on various aspects of the situation. So on one hand, there's definitely more new customers, for example. On the other hand, in the first quarter, people tend to have more money. So hence, that will also impact their habits as well as their behaviors. And it also depends on many other possibilities such as, for example, what we're selling at the time, what we're promoting, the mix of products, et cetera. So it's complicated. But ultimately, what we'd like to emphasize is that overall, the tenor and the time frame is still quite stable, and it's still very much within our range of expectations. And it's not something that is, for the lack of a word -- better word, changing, if you will, or at least not changing dramatically.

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Unidentified Company Representative, [29]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [30]

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[Interpreted] So on the second question with regards to the model evolving, if you will, no reserves or no guarantees or transferring all the risks to the banks, I think the first thing we always want to emphasize is that we're a financial technology company. So that's the areas that we want to focus on. And certainly, this is a model that we do want to develop. But on the other hand, it certainly does impact our profitability, especially under the current model, and that's something that we definitely have to weigh and consider.

Another aspect of this is that as a financial technology company, at the very much core of what we do, a top priority will always be the control of risk or our control of risk and our ability to assess risk. So we also have to think about this in the context of our control and our understanding of the risks out there as opposed to passing on the risk to someone else. So in that light, there's definitely not a goal, if you will, of, for example, moving everything to the banks by year-end or moving everything completely to a model where there's no guarantee or reserves that are set aside by us because it does impact some of the course of the business as well as the profitability. But this is something that definitely we'd weigh and consider depending on the situation.

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Unidentified Company Representative, [31]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [32]

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[Interpreted] So on the third question with regards to charges and impacts to the sales and marketing as we provide additional benefits to our customers, I guess, first, it's always worth pointing out there's different level of customers within our systems, whether it's the Le Card or Lehei, the Black Card. And of course, the Black Card customers, they actually pay annual fees. So it depends on which particular level.

But I would also still like to emphasize that a lot of these types of cooperation and how we work with our partners and what we give our partners potentially, it's more through contracts as opposed to, for example, through subsidies or through payments. Because ultimately, everybody knows that we have access to very, very desirable customers in our educated young adult customers. So quite often, it doesn't really involve subsidies per se. Rather, it involves more providing access to our potential partners.

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Unidentified Company Representative, [33]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [34]

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[Interpreted] And on your last question with regards to the outstanding balance per customer, it's first perhaps worth pointing out that, of course, right now we have a very varied, if you will, balance of customers, of different ages, of different types of needs and, in particular, different financial needs who are in different stages of growth and life stage right now. And as we always emphasize, there is natural growth with our customers, and they will eventually grow to the like natural balance, if you will, for each age group at that particular time. So certainly, the balance naturally will continue to grow over time.

As we continue to show, and as I'm sure you're fully aware of, the cohort that we acquired in the first quarter of 2015, you see where the balance is. And this is certainly not to say that, very quickly or suddenly, all our customers will reach that level of borrowings. After all, these customers are customers that we've served for 4 years. So ultimately, this particular cohort is actually older than the average age of our overall customers. But that said, from that and from just the natural growth of our customers, we know certainly that the loan balance will continue to grow at a steady rate.

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John Cai, Morgan Stanley, Research Division - Research Associate [35]

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(foreign language) I have 2 follow-up questions. The first one is that we mentioned around 90% of the customers we currently are not serving. And I just wonder if there's any particular reasons we think behind that. And also, by providing them some e-commerce consumptions or benefits, are we aiming to transition them to financial users or borrowers?

And the second follow-up would be on the customer retention. So I mean currently, our average outstanding balance per borrower is CNY 9,000 versus maybe previous years, about like 5 -- CNY 4,000 or CNY 5,000. Do we see an increase in costs or difficulty to retain them?

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Unidentified Company Representative, [36]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [37]

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[Interpreted] So John, with regards to your 2 additional questions, on the customers that we haven't been serving well, why that would be the case or rather we haven't served them. It could be things as simple as, for example, that they just don't have financial needs right now. They don't have consumption, finance needs. They don't need to borrow right now. Or alternatively, they temporarily don't have it, but they might in the future, in which case -- and certainly, we will need to engage with them. And we certainly want to raise the level of their activity with us nevertheless.

It's also possible that for whatever reasons, at this particular time, they can't meet our standards and specifically our credit standards. But that's not to say that they wouldn't be able to meet our standards some time in the future. And in the context of a couple of things we just mentioned, financial services, unfortunately, may put us in a bit of a passive position in terms of engaging and being active with the customers. Rather, we would like to engage with them more, and we can do that perhaps much more through consumption and, in that way, perhaps lead them to other services that we can provide in the future.

Now with regards to the second additional question you had about the increasing costs potentially for retention and moving the loan balances higher over time and what that would involve or cost, I think we like to emphasize that this is something that our business has been built on. This is something that we've done, we're very, very familiar with doing and we're very good at executing on. And this is something that we will certainly continue to do and execute on. So it probably wouldn't involve necessarily too many new or additional things in that respect.

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Wenjie Xiao, LexinFintech Holdings Ltd. - Chairman & CEO [38]

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(foreign language)

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Tony Hung, LexinFintech Holdings Ltd. - Investor Contact [39]

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[Interpreted] So I think it's always worth pointing out that while we have 10 million customers with credit lines that we're actively engaged with and of which, for example, 3 million, 4 million would be active, we have over 40 million users who are registered who can also still be active on our platform as well. So there's 30 million who do not have credit lines with us but, nevertheless, are registered with us.

Now are they all truly bad credit? I'm sure some perhaps are. But others, perhaps we can work with or provide them other types of services too, and perhaps there are other ways of exploring and monetizing the opportunities here. So this is something that definitely we would like to explore and engage with more. We believe that there's other things that we can develop through this process of exploring and engaging, including additional capabilities within our own operations and, in particular, our credit operations.

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Operator [40]

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Thank you. Ladies and gentlemen, that does conclude the conference call for today. Thank you for participating. You may all disconnect.