Lexinfintech Holdings Ltd. (LX) Q3 2022 Earnings Name Transcript

Lexinfintech Holdings Ltd. (LX -9.25%)
Q3 2022 Earnings Name
Nov 16, 2022, 8:30 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Good day and thanks for standing by. Welcome to the LexinFintech third quarter 2022 earnings convention name. [Operator instructions] Please be suggested that at this time’s convention is being recorded. And now I would like at hand the convention over to Ms.

Echo Yan, IR director of LexinFintech. Thanks. Please go forward.

Echo Yan — Investor Relations Director

Thanks, operator. Hiya, everybody. Welcome to LexinFintech’s third quarter 2022 earnings convention name. With us on the road at this time are CEO Jay Xiao, president, Jared Wu, and CFO, Sunny Solar.

Earlier than we get began, I would wish to remind you that the decision and presentation accommodates enterprise outlook and forward-looking statements, that are primarily based on a assumptions as of at this time. The precise outcomes might differ materially and we undertake no obligation to replace forward-looking statements. Jay will first present an replace on our efficiency. Sunny will cowl the monetary leads to extra element.

And lastly, Jared-san will talk about danger administration. I’ll now flip the decision over to Jay. His remarks will probably be in Chinese language after which his translation will probably be adopted. Jay, please?

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Hiya, everybody. It is my pleasure to talk with you, once more.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Within the third quarter, already COVID resurgence and the considerably pressured macro financial system will obtain a end result that not solely continued the restoration development but additionally the previous. Our second and third quarter outcomes [Inaudible] impediment has had below sustainable impact of clear change for the higher.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Our mortgage quantity exceeded the earlier steerage at RMB 53 billion, reaching RMB 56.2 billion for the final quarter, representing a rise of 14% quarter over quarter — [Inaudible] income at RMB 2.7 billion, representing a rise of 12% quarter over quarter. Web revenue at RMB 280 million, representing a rise of 65% quarter over quarter. General, excellent mortgage steadiness at RMB 94.6 billion, representing a rise of 9% quarter over quarter. Complete registered customers at 180 million, representing a rise of 19% 12 months over 12 months.

Because the starting of this 12 months, our asset high quality, funding price and mortgage quantity improved quarter over quarter, offering enchancment in our profitability. Web margin improved steadily from 4.8% within the first quarter to 10.2% within the third quarter.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

The advance continued within the fourth quarter. Primarily based on our confidence in technique and progress potential, the corporate repurchase program stays in execution. As of September 30, 2022, the corporate had repurchased roughly 20 million ADSs for about USD 44 million below this repurchase program. As well as, a brand new share repurchase program has been licensed below which the corporate may buy as much as an mixture of USD 20 million over the following 12 months from November 17, 2022.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Our ongoing restoration development is completed, due to our asset high quality on a regular basis and operation technique, that is being refined immediately, which is reducing our danger stage, refining operations and higher asset high quality to the development of profitability. Specifically, the asset high quality will proceed to strengthen our danger administration staff by introducing a number of abilities within the trade to hitch us this quarter. We have now additionally strengthened our funding in knowledge and fashions to constantly enhance the accuracy of danger identification. And I want to elaborate extra on these topics now.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

On the acquisition entrance, within the third quarter, we bolstered our on-line buyer acquisition capabilities by increasing the leverage of the usage of exterior knowledge assets and deepening the company bonds with our commercial companions to generate over 30 buyer acquisition fashions. For the final quarter, our acquisition price went down 14 % 12 months over 12 months and new buyer per capita elevated by 31% in September in contrast with that quantity in June.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

When it comes to our current clients, we proceed to reinforce our capabilities right into a extra refined operation in buyer administration by incorporating exterior knowledge assets with our personal database, which contained a few years of information. And elevated our knowledge abundance by 30%, prolonged the diploma of the direct connection of the usage of the credit score stories from PBOC and derived practically 400,000 danger identification dimensions. On prime of that, we established and perfected a brand new danger mannequin primarily based on completely different buying and selling patterns, growing its accuracy by 10%. On the operational technique entrance, we adopted one in every of our priorities in exploring the potential of our certified clients to whom we offered larger credit score strains and decrease rates of interest and boosted their contribution in values all through their life cycles.

In the meantime, we’re persevering with the course of a gradual discount of high-risk clients to additional stabilize our danger stage.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

By means of these approaches, our asset construction was improved to the following stage for the third quarter. Low danger buyer mortgage origination quantity elevated by 70% quarter over quarter and common contribution elevated by 44%. Within the meantime, the ARPU of our lively clients elevated by 33% 12 months over 12 months and the incremental scale of mortgage origination conversion of the prevailing customers exceeded RMB 2 billion. Within the third quarter, the 30-plus day delinquency price was 4.61%, which decreased 0.24 share level quarter over quarter, whereas the 90-plus day delinquency price was at 2.66%.

The day one delinquency price continued to be decreased quarter over quarter, whereas the 30-day assortment price was maintained at above 90% with a gradual enhance.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

All these can’t be achieved with out the help of the optimization of our knowledge and know-how capabilities, which has at all times been the core driving engine of the event of the corporate. Within the third quarter, analysis and improvement bills had been at RMB 140 million, a 7% enhance 12 months over 12 months, persevering with to take the lead of the trade. The sensible enterprise engine continued to be iteratively upgraded. When it comes to the system capabilities, we established mechanisms or methods resembling our person LTV mannequin, indicator valuation alert and clever attribution scheme.

We elevated the protection of agile enterprise situations to 100%, which vastly improved the corporate’s decision-making and operational effectivity. When it comes to AI purposes, we strengthened the exploration utility of deep studying to determine person dangers from extra dimensions. And the chance identification skill of recent clients has been improved by 20%. The sequence of promoting fashions primarily based on federal studying and the joint modeling has improved the advertising conversion of recent and current clients by greater than 35%.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

I’ll [Inaudible] a bit of bit on the enterprise acquisition surrounded by our three predominant enterprise. The Double 11 e-commerce pageant has simply handed and our singular platform delivered an encouraging efficiency. From October 24 to November 12, whole GMV elevated by 97% 12 months over 12 months, and the variety of transactions and customers elevated by 94% and 70%, respectively, benefiting from the consumption situations of the singular platform, our installment consumption situations led by Lehua card reached 15% enhance 12 months over 12 months in transaction quantity and ARPU of transaction customers elevated by 30% 12 months over 12 months, leveraging some great benefits of consumption situations and specializing in high-quality buyer operations. Our new consumption-driven local-based service enterprise has continued to develop this 12 months.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Wanting now in consumption situations and the core capabilities of information evaluation and know-how preserve its progress of integrating with the enterprise, which types a round enhancement job, our high-frequency consumption-driven local-based enterprise, put Lehua at benefit of getting alternatives to generate extra high-quality clients for credit-driven enterprise. Accrued know-how and danger administration expertise and capabilities of credit-driven enterprise enable us to additional present providers to our monetary establishments and retailers, in addition to promote synergetic improvement of our technology-driven platform enterprise. The synergetic improvement makes Lexin linked with extra funding swimming pools and situations of virtuous circle first shaped. Lexin’s distinctive enterprise ecosystem with three diversified income drivers enable us to extra robustically reply to the advanced and altering exterior surroundings.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Let me spend a couple of minutes to replace you about Lexin’s company social duty, our CSR initiatives. Within the second quarter, we launched a selected program referred to as [Foreign language] to assist SMEs to cope with their money liquidity challenges and this system continues. The whole quantity of small and micro loans was RMB 5.4 billion within the third quarter. For SMEs, extra affected by the pandemic resurgence, we took a number of measures to assist them tide over the difficulties.

As well as, we additionally upgraded our buyer safety initiatives within the fourth quarter by launching the 5S Guardian system, which makes full use of the AI know-how to strengthen knowledge safety, anti-fraud safety safeguard, conduct requirements, intelligence customer support and the strike for combating monetary blackmail. The entire 5Ss collectively permits us to construct a complete safety firewall for purchasers.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Wanting into the longer term, we’ll keep optimistic with an optimistic angle to pursue continued sustainable high quality improvement. We’ll do our bit to assist offline shops and even actual enterprise improvement with our superior fintech applied sciences, whereas offering help to younger individuals and SMEs. We’ll proceed to strengthen the corporate’s underlying capabilities, optimize our buyer segmentation operation technique and enhance profitability by decreasing the price whereas growing effectivity, thus making us and higher ready for any future challenges and uncertainties. The present momentum could be maintained within the fourth quarter and our mortgage origination is predicted to be according to the amount of this quarter.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Let me now hand over the decision to our CFO for monetary updates. Thanks.

Sunny Solar — Chief Monetary Officer

Thanks, Jay. Good morning and good night, everybody. It’s my pleasure talking to you once more. I am excited to report that regardless of exterior uncertainties, our third quarter efficiency continued with a optimistic and upward traits guided by our precept of pursuing sustainable and high quality progress.

We proceed to construct up a diversified income construction, superior danger identification capabilities and operational efficiencies. Our endless efforts on know-how innovation and digital transformation additionally contributed to the achievement of Q3’s efficiency. Now, let me undergo some key monetary and operational metrics with you. Complete mortgage origination within the third quarter was RMB 56.2 billion, representing a 14.4% progress quarter over quarter.

The excellent mortgage steadiness stood at RMB 94.6 billion, delivering a 9.2% enhance in contrast with final quarter. If we have a look at the outcomes on the finish of fiscal 12 months 2021, our excellent mortgage steadiness as of Q3 already elevated by 10.1%, demonstrating the continued resilience of our enterprise. We’re delighted to see that the optimistic momentum of each our mortgage originations and excellent mortgage steadiness has continued for 2 consecutive quarters. And primarily based on present data, it’s on the right track for the remainder of the 12 months.

Whereas driving a stable progress continuity, we preserve an shut eye on potential fluctuations externally resembling COVID resurgence-related financial affect and are assured to make the corresponding changes if wanted. On the present level of time, the administration believes high quality over amount is the suitable strategy to maintain a wholesome standing of our enterprise. Complete working income was RMB 2.7 billion, attaining an 11.5% enhance quarter over quarter. Income from new consumption-driven location-based providers was RMB 525 million, a rise of 31.3% from the identical interval of final 12 months, a modest lower of two.5% quarter over quarter.

It’s value noting that the June 18, [Foreign language] on-line procuring pageant made significant contribution to the Q3 income. Income from technology-driven platform providers was RMB 500 million, representing a 14.6% enhance quarter over quarter. Income from credit-driven platform providers was RMB 1.7 billion, delivering a 15.8% enhance quarter over quarter. I would wish to take the chance to emphasise once more that we have now reorganized our income segmentation since Q1 this 12 months, which we imagine higher displays the variety and resilience of our income and the character of our enterprise.

As soon as once more, the contribution from noncredit pushed providers was about 40% of the whole income this quarter and has reached RMB 1 billion, attaining a 5.1% enhance quarter over quarter. That is according to our strategic aim of realizing prime quality and complementary income construction, which allows us to raised overcome future exterior challenges in the long term. According to authorities steerage, mortgage pricing in Q3 continued to fall and moved nearer to 24%. The combination inside 24% APR was above 80%, just like the final quarter.

Let me transfer on to the expense facet of the third quarter. Gross sales and advertising bills decreased by 11.1% quarter over quarter and by 13.5% 12 months over 12 months to RMB 425 million. That is as meant by the administration to take care of a prudent general spending in view of the unsure buying and selling circumstances. Nevertheless, we’re reaching our clients extra exactly by varied on-line and offline channels, due to our digitalized and data-driven advertising packages.

Analysis and improvement bills elevated by 7.3% 12 months over 12 months to RMB 141 million, reflecting our steady funding in upgrading our know-how capabilities. G&A bills went down by 7.7% quarter over quarter to RMB 104 million. Whereas the mortgage origination and prime line income capped their upward development this 12 months, our G&A bills remained steady and decreased on a Q-on-Q foundation for 2 quarters. I am notably completely happy to notice that the online revenue of Q3 was RMB 276 million, attaining a 64.4% important enhance quarter over quarter.

It’s encouraging to see that our profitability has continued its robust restoration development on a Q-on-Q foundation. Whereas our main danger indicators remained steady, we count on web revenue to be additional improved in This fall primarily based on the present exterior circumstances. On March 16, 2022, the corporate’s board of administrators licensed a USD 50 million share repurchase program. As of Q3, the corporate has repurchased roughly 20 million ADS for about USD 44 million below this program.

The board has additionally licensed a brand new USD 20 million repurchase program. Nevertheless, prioritizing and concentrating assets on strategic and significant performance-related initiative will probably be our tenet. We’ll proceed to pursue a sustainable and resilient enterprise strategy and we’ll additionally preserve ourselves within the know of any materials indicators of exterior adjustments that will affect our enterprise. We’re very assured that we’re effectively positioned to react shortly and responsibly.

With that, I’ll flip the decision over to our president, Jared Wu, who’s overseeing the chance division. Jared, please?

Jared Wu — President

[Foreign language]

Echo Yan — Investor Relations Director

Thanks, Sunny. Good morning, and good night, everybody. It’s a nice pleasure to talk to you all — to all of you at this time.

Jared Wu — President

[Foreign language]

Echo Yan — Investor Relations Director

Now, let me elaborate on the chance administration efficiency of our enterprise. Final quarter resulted to be 1 / 4 of enchancment amid macro surroundings uncertainties and the residual affect of sporadic COVID resurgence. We’re witnessing a continued lowered day one delinquency price as of the top of September. And our 30-plus day supply was at 4.61% this quarter, representing a lower of 0.24 share factors from the final quarter.

As for our 90-plus day delinquency, it held comparatively regular at 2.66% this quarter, which fell into our prediction at up three foundation factors. And we count on the affect from second quarter’s COVID restrictions has been fitted out and our 90-plus day delinquency has peaked within the third quarter. Ought to no interruptions attributable to exterior power majeure occur, we’re prudently optimistic to state that our delinquency metrics are to go on a steady downward development to succeed in a extra balanced stage and our general danger stage to proceed to fill in a extra favorable path.

Jared Wu — President

[Foreign language]

Echo Yan — Investor Relations Director

Within the final quarter, additional serving high-quality makes use of and boosting the contribution of our high-quality customers was one in every of our priorities. Surrounding such, we expanded the depth and the breadth of the usage of extra high-quality knowledge assets and boast on strengthening the exploration and utility of credit score stories from the PBOC, in addition to additional upgrading the refinement fashions for various person segments. These measures helped us determine high-quality customers extra precisely and match them with decrease rates of interest. So, our APR has continued to say no, selling a major enhance within the buyer unit worth of high-quality customers.

Jared Wu — President

[Foreign language]

Echo Yan — Investor Relations Director

Within the final quarter, the melting level resurgence of the pandemic has actually, impacted our danger administration entrance. And we are able to see that the chance of property in high-risk cities rose to some extent. However every little thing final 12 months, we began to construct a danger monitoring and focused technique adjustment mechanism for pandemic areas. And this technique has matured to the purpose that we are actually in a position to shortly alter our pre-lending, mid-lending and post-lending methods based on the state of affairs in every pandemic space, which is among the necessary measures for us to proceed to enhance our danger efficiency on this quarter.

Jared Wu — President

[Foreign language]

Echo Yan — Investor Relations Director

As we proceed to dedicate assets to our danger administration part of refined danger administration capabilities superior quickly. For the previous two quarters, on one hand, we actively introduced in a number of danger administration abilities within the trade. Then again, we have now been accelerating the relative improve of varied fashions of danger administration and have been growing the funding in knowledge assets and fashions, which have had a well timed impact on refining the identification of our person danger. We have now made good progress in all features, respectively, from buyer acquisition to asset administration from credit score line granting to pricing and the corresponding initiatives within the aforementioned have demonstrated successfully of their early stage outcomes on this quarter.

Going ahead, we’ll carry on engaged on supplementing these initiatives to additional improve our danger administration capabilities and proceed to enhance our asset combine and danger efficiency. Thanks. This concludes our ready remarks. Operator, we are actually able to take questions.

Questions & Solutions:

Operator

Thanks. Women and gents, we’ll now start the question-and-answer session. [Operator instructions] Our first query comes from the road of Hans Fan from CLSA. Please ask your query.

Hans Fan — CLSA — Analyst

[Foreign language] I’ve received two questions. Initially, that is Hans from CLSA. Congrats to the development within the outcomes on a quarterly foundation. I received two questions.

One is on regulation, one other one is on APR. So are you able to give us some updates relating to the rectification course of, particularly the decoupling of information feeds to the banks? Particularly that over the latest days and weeks, we have now observed some indicators of pivots in China fintech regulation. So, simply questioning what’s our progress there. Quantity two is concerning the APR.

The APR of our firm has been coming down prior to now few quarters primarily based on regulatory necessities and in addition our adjustment of the shopper base. So, simply questioning what is the outlook for the APR? And in addition what is the actual APR within the third quarter? That is my query. Thanks very a lot.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Let me take the query. The primary one concerning the rules. As , we aren’t within the first bench of the identify record. So at the moment, there isn’t a particular necessities to our firm but.

However nonetheless, we’re intently working the conditions. And we need to get the concepts of what’s the particular necessities to the primary bench of identify record. In the meantime, we’re sustaining very shut communications with [Inaudible] these two distributors within the trade, and we’re very conscious of the options of those two corporations. And at the moment, we’re already about all of the plans so long as the necessities from the authorities could be clear and the present performed plans have been accepted, we are able to take very fast initiatives to be linked as effectively.

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

On this quarter, our APR may be very near 24%, 24.3%, solely a bit of bit above 24%. And the pricing, which is above 24 share may be very, very restricted. And going ahead, we’ll proceed to additional lowering our APR. And we imagine, along with the elevated share of our high-quality clients and the rise of our asset qualities, our pricing will proceed to be decreased.

From different perspective, we imagine the upper high quality clients, the higher high quality of the asset administration is definitely according to the additional lowering of our APR. Solely with a greater APR, we have now attracted the next high quality of the shoppers.

Hans Fan — CLSA — Analyst

[Foreign language] Thanks very a lot.

Operator

Thanks. Our subsequent query comes from the road of Frank from Credit score Suisse. Please ask your query, Frank.

Frank Su — Credit score Suisse — Analyst

[Foreign language] That is Frank from Credit score Suisse. Thanks administration for giving me the alternatives to ask questions. I’ve received two questions. The primary one is on credit score high quality.

We see that on this quarter, 90-day stored flattish quarter-on-quarter, 30 days began to fall already, and the corporate instructed it is seemingly to enhance going ahead. If the credit score high quality continues to enhance, ought to we see some sizable write-backs on the availability bills within the subsequent few quarters? And the second query is on funding prices. This quarter, funding prices improved by 20 foundation factors. What’s the predominant driver behind this? And in addition not too long ago, we have now seen some marginal tightening within the financial market.

Will we count on additional optimization on the funding price within the fourth quarter? Thanks.

Sunny Solar — Chief Monetary Officer

[Foreign language] I’ll translate myself for the English-speaking viewers. For the primary query, we’re additionally very completely happy to see that our asset high quality remained steady and goes an upward development. Nevertheless, we’ll most likely not ready to say that there will probably be important discount in provision as a result of uncertainties of the exterior surroundings, notably the COVID resurgence-related financial affect. In fact, we do see the opportunity of such a discount of the provisions.

However in the intervening time, we predict that it’ll stay steady. We’ll intently — we’ll preserve an in depth eye on the circumstances out there. So at this second, I feel there are uncertainties. And the second query relating to the drivers of the price of funding.

We’re additionally completely happy to say that we have now a 20% foundation level discount for the final quarter. And that is, in fact, as a result of favorable insurance policies adopted by authorities on one hand and in addition due to the years of relationship that we have now constructed up with our companions and we’re having shut cooperation. So I suppose it is a results of each drivers.

Operator

Thanks. Our subsequent query comes from the road of Alex Ye from UBS. Please ask your query, Alex.

Alex Ye — UBS — Analyst

[Foreign language] So I’ll translate for my query. The primary one is on our buyer combine migration. So, I’ve observed that our per buyer mortgage quantity, the ticket measurement has elevated sizably Q-on-Q. So, I’d presume that was largely pushed by our buyer combine improve.

However I simply need to get extra colour on for instance, what was share of our — the high-quality clients per our definition and the way does this modification Q-on-Q? And what is the outlook from right here? And second query is on the take price. So, given our ongoing buyer combine upgrades, so how has been the affect to our take price. So particularly, I need to know extra concerning the take price for this quarter on the brand new quantity perspective? And the way does it evaluate to our whole — the take price from our whole portfolio? And will we are saying that we have now most likely seen our take price backside from right here?

Jay Xiao — Chief Govt Officer

[Foreign language]

Echo Yan — Investor Relations Director

Speaking concerning the premium or high-quality clients, we divided our clients into completely different dimensions from the chance stage. And at the moment, internally, we’re primarily specializing in stage one to a few as our main focused high-quality clients. We’re — from three dimensions. Initially, we additional perceive the nice efficiency clients who attracted again our unique current clients.

And sooner or later, along with additional present higher providers and higher — and primarily based on the higher understanding of our present high-quality clients, we’re additionally taking the property to additional restrict the high-risk clients. Internally, we outline them as the chance stage from six to eight. So along with all these property, we imagine our general danger administration constructions or asset constructions will probably be proceed to be optimized. Speaking concerning the take price, along with the additional optimization of our danger administration and asset constructions, we imagine our take price will probably be additionally on up development sooner or later.

And at first of this 12 months, we have now the general view of our take price stage for the entire 12 months, which is 3%. At present, this entire 12 months view just isn’t modified.

Operator

Nice. Thanks. [Operator instructions] There aren’t any additional questions. I want to flip the decision again to the administration staff for closing remarks.

Echo Yan — Investor Relations Director

Thanks all once more, everybody, for becoming a member of us at this time. When you have additional questions, please contact us the place our contact data obtainable on our IR web site. Thanks.

Operator

[Operator signoff]

Period: 0 minutes

Name contributors:

Echo Yan — Investor Relations Director

Jay Xiao — Chief Govt Officer

Sunny Solar — Chief Monetary Officer

Jared Wu — President

Hans Fan — CLSA — Analyst

Frank Su — Credit score Suisse — Analyst

Alex Ye — UBS — Analyst

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