Lexinfintech Holdings Ltd. Sponsored ADR Class A Aktie

Good day, and thank you for standing by. Welcome to Lexin First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to your first speaker today, Will Tan, IR Director of the company. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our first quarter 2026 earnings conference call. Our results were released earlier today and concurrently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on our overall performance and the strategies of our business. Our CFO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Last, please note that all figures are presented in renminbi terms and all comparisons are made on a quarter-over-quarter basis unless otherwise stated.

Please kindly note Jay and Arvin will give their whole remarks in Chinese first, then the English version will be in delivered by Jay's and Arvin's AI-based voices.

With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and the CEO of Lexin. Please sir.

[Interpreted] Hi, everyone. Thanks for joining us today for our first quarter 2026 earnings call. In the first quarter, against the backdrop of macroeconomic and industry challenges, our unique and diversified business ecosystem, which we have been building for many years, demonstrated strong operational resilience. During the quarter, the loan volume of our installment e-commerce, off-line inclusive finance and fintech empowerment businesses accounted for nearly 50% of the total. All system businesses grew faster than the online loan facilitation business, becoming the company's new growth drivers. This indicates the transition from old to new growth drivers, the initial success of our long-term oriented strategy of diversified development and the company's steady progress towards healthy and sustainable development.

During the quarter, the company achieved a loan volume of RMB 57.9 billion, representing a quarter-over-quarter increase of 15.9% and a year-over-year increase of 12.2%. Revenue reached RMB 3.3 billion. Number of active users stood at $5.17 million, a quarter-over-quarter rise of 14.1% and 8.6% year-over-year. Number of new active users was $1.44 million, up 63.3% quarter-over-quarter and 101.6% year-over-year. Net profit reached RMB 201 million, besides a number of key risk indicators continue to show improvement, maintaining a stable trend.

Next, I will walk you through the key initiatives we have undertaken since the first quarter. First, our diversified ecosystem businesses accounted for nearly 50% of our total loan volume, becoming the new growth drivers. In the first quarter, despite the seasonal impact of Chinese Spring Festival holiday, our installment e-commerce, offline inclusive finance and fintech empowerment businesses continued to grow steadily, with loan volume increasing significantly. [indiscernible] growth momentum to the company's overall performance. We have unlocked the new growth space for our B2B business by efficiently connecting with Internet traffic platforms and financial institutions. In the first quarter, our FinTech empowerment business, which we have been building for many years began to grow rapidly.

Our [ UMC ] Technology Pro solution builds a bridge of resource collaboration between Lexin, Internet traffic platforms and various financial institutions by incorporating our technological capabilities and operational experience. It enables our partnered-platforms to distribute traffic precisely and efficiently empowers financial institution partners to obtain assets with stable profitability and thereby [indiscernible] fits for all 3 parties. Our installment e-commerce, refined its supply chain and fully penetrated essential consumption scenarios. Installment e-commerce business continued to deepen its presence in different consumption scenarios, refine the supply chain set and enriched product offerings across categories such as food, appeal, transportation, travel, shopping, entertainment and pets.

During the quarter, leveraging our advantage in partnerships with industry leaders, we added nearly 150 well-known brands and launched an outlet channel for select merchants, signing more than 20 domestic and international fashion and sports brands. Since its launch, total transaction volume of participating [indiscernible] increased by 43% quarter-over-quarter, fully meeting users' demand for quality consumption, targeting essential daily needs and festive gifting scenarios and several major promotional campaigns during key consumption periods such as New Year's Day, Chinese Spring Festival Gift Fair and the Lunar New Year holiday, consistently driving consumption growth.

In the 3C digital products segment, ongoing interest-free and discount offers effectively boosted user activity. During the quarter, the number of orders from high-quality users on our platform increased by 35.7%.

Inclusive Finance business expanded its county-level presence, unlocking new growth in lower tier markets. Our offline Inclusive Finance business has always focused on localized operations for specialized industries such as agriculture, forestry, animal husbandry and fishery. We have launched unique risk models and credit approval strategies tailored to industry-specific customer segments. This helps match the funding needs of county-level small and micro businesses and individual merchants with local financial institutions, ensuring that inclusive financing resources continue to flow into county economies and supports their development.

During the quarter, our overseas business developed steadily with continued stable growth in loan volume, profitability and assets. Second, we refined our risk strategies and optimize our product matrix, leading to movements in asset quality. In the first quarter, we continue to adjust and optimize our risk strategies. Our deeply iterated algorithms and models significantly improved the efficiency of channel connection and target user screening. We newly launched a credit report interpretation AI agent and an interactive credit enhancement function, meaning user identification more accurate and effectively supporting personalized pricing and credit line allocation for high-quality users, we have made flexible repayment features such as on-demand borrowing and repaying and bullet repayment available across all products. Focusing on white collar workers and small and micro business owners, we develop differentiated credit granting and outreach strategies.

Through scenario-based operations, we allocated pricing credit line resources preferentially to high-quality customers, consistently boosting their activity levels. During the quarter, our asset quality continued its steady recovery, with risk indicators improving for both existing and new assets. The total assets day 1 delinquency ratio decreased by about 7% quarter-over-quarter. 30-day collection rates improved month-over-month. New customer quality also improved. Loan volume to high-quality segments rose notably. FPD 30 of new loans initiated in the first quarter is expected to decrease by about 6%. In the first quarter, we continued to increase resource investment in consumer protection and customer experience improvement.

We strengthened the coordination between our frontline service and consumer protection teams and various business lines. enabling smoother information flow, more timely issue response and a more efficient closed-loop resolution mechanism. In terms of service experience, by optimizing intelligent routing and queuing strategies and introducing peak time early warning mechanisms, we significantly improved service efficiency with key customer [indiscernible] showing further improvement.

On the customer care front, we enhanced our user behavior analysis through more sophisticated models and refined customer tiering, implementing more targeted care measures for different segments, which improved overall user experience and satisfaction. In combining illegal financial activities and fraud loan syndicates, we actively responded to relevant regulatory deployments, leveraging our technological advantages in AI and big data to strengthen the end-to-end defense and governance system, including [indiscernible] identification and case detection, thereby safeguarding consumers' legitimate rights and interests.

Looking ahead, building upon the initial success of our diversified system strategy and the solid growth momentum of our businesses, we will continue to drive our installment e-commerce, off-line inclusive finance and fintech empowerment businesses, steadily advancing along the path of diversified and resilient development. We believe that our unique ecosystem advantages will continue to strengthen the company's operational resilience, enabling us to navigate future uncertainties and create long-term sustainable returns for our shareholders.

Next, I'll hand over the floor to our CRO, Arvin. Thanks.

[Interpreted] -- Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the first quarter of this year.

In the first quarter of 2026, as the impact of the new regulations on industry risk gradually subsided, industry-wide risk again still decline. We also maintained the steady risk reduction trend we have seen since last year. Regarding specific risk performance compared to the fourth quarter of 2025, day 1 delinquency ratio of total assets decreased by approximately 7%. The 30-day collection rates continue to recover month-over-month, and we estimate that FD 30 for Leon, initiated in the first quarter to, decline by about 6%. Overall, this performance continued to improve.

Now let me walk you through the specific risk initiatives implemented during the quarter. First, we continue to scale up the application of large models in risk management scenarios during the first quarter, consistently improving the efficiency and effectiveness of management. On the high-risk asset management type, we leveraged large model capabilities to optimize and upgrade our high-risk asset management robots and automated with inspection robots, effectively enhancing our risk identification capabilities and the efficiency of high-risk customer management. This helps sustain the downward trend in risk during the quarter.

At the same time, we use large models to enable real-time interactive credit line increases, growing the prime asset base and driving continued improvement in loan risk. Through large models, we achieved real-time online interaction or credit line increases, efficiently capturing customers' credit needs and credit enhancement documentation. This not only significantly improve the accuracy and efficiency of risk identification, but also enable us based on a comprehensive understanding of customer risk profiles and needs, to offer customers personalized credit offers that meet their specific requirements.

Second, in our consumer credit business, we promoted steady growth in prime asset volume through a dedicated prime customer segment management. focusing on prime white collar customers and small and micro business owners. We leverage a dedicated risk identification model, differentiated credit line increase and pricing reduction strategy and account management services to substantially increase both the addressable customer base and drawdown rate of prime target segments, driving significant growth in volume.

Compared with the fourth quarter of 2025, loan volume from prime time white collar customers increased by 56% and volumes from prime small and micro business customers increased by 30% in the first quarter, demonstrating the early success of our prime segment management approach. In the second quarter, we will continue to refine our prime segment management capabilities to further drive prime asset growth.

Third, regarding our inclusive finance, we continue to deeply cultivate broad county level market and fully implemented a localized operation strategy. Tailored to the characteristics of country-level customers, we developed a country level business risk model, and optimize this strategies with optimized customer onboarding, credit granting and pricing to match the risk profile and credit needs of small and micro customers in offline wholesale and retail, agricultural supply and farming segment. At the same time, we strengthened risk management and post loan collection for small and micro customers through online and offline coordination. To date, we have covered nearly 100 [ countries ], served over 4 million small and micro merchants and individual operators, maintained stable risk performance and continue to grow loan volume.

Additionally, in the first quarter, we strengthened our identification on illegal and [indiscernible] activities. We built an end-to-end prevention and control system encompassing early warnings, in-process intersection, post-event enforcement and ecosystem coordination to combat illicit activities such as agencies complaints. We provided actionable leads to public security authorities, assisted in the successful crackdown of a fraudulent syndicate in Shandong province and facilitated the rest of over 40 suspects.

Looking ahead to the second quarter of 2026, we will continue to optimize our asset mix and strengthen risk management over new loans. At the same time, we will better serve prime customers and enhance their experience driving further growth in high-quality assets, while keeping this stable and controllable. Our goal is to gradually bring these levels back within our target risk CapEx.

Next, I will hand over to our CFO, James, to provide a review of the company's financial performance for the first quarter.

Thanks, Arvin. I will now provide a detailed overview of our first quarter finance results. Please note that all figures are presented in rembi meters and all conversions are made on a quarter-over-quarter basis unless otherwise stated.

During the first quarter, the industry continued to navigate a period of adjustment. Again, this complex backdrop for our diversified business ecosystem demonstrated continued operational resilience. Driven by the structural optimization of our business portfolio, we successfully grew our total loan volume. While our online consumer finance business faced pressure due to the macro uncertainties, our ecosystem segment [indiscernible] tech empowerment service achieved solid growth. Consequently, total revenue for the first quarter was RMB 3.3 billion, representing an 8.7% sequential increase with net income remaining relatively stable at RMB 201 million.

Now let's take a review of our first quarter financial results. First, net revenue of the credit base, which is derived by adding up credit facilitation service income to take empowerment service income, net of credit costs, including provisions and fair value changes and the funding cost, was RMB 1.5 billion, representing a 7.2% or RMB 98 million increase quarter-over-quarter. The overall growth was largely driven by BRL 382 million in tech empowerment service income. This was underpinned by revenue growth from lower provisions top-ups for our capitalized portfolio among improving asset quality. Since our capital-light income is recorded net of credit cost, the material sequential decline in provisions directly boosted this revenue line.

On the other hand, credit facilitation service income, our capital-heavy business declined by about 10% or RMB 253 million. This reflects the ongoing volume and pricing headwinds in our online consumer finance business, partially offsetting the increase in our tech empowerment service income.

Second, net income of the installment e-commerce business, refined by installment e-commerce revenue, net of cost inventory sold, increased by 41 million to 208 million. So the total net revenue, summing the credit and installment e-commerce business added up to 1.7 billion, a 9.1% or 138 million increase quarter-over-quarter. On the expense side, operating expenses, including sales and marketing, research and development general administrative expenses and processing the servicing costs increased by 13.8% or 169 million to 1.4 billion. Tax and others decreased by 20.9% or 18 million to 68 million. Consequently, total expenses end up to 105 billion, an increase of 151 million. By deducting the total expenses of CNY 1.5 billion from total net revenue of 1.7 billion, we arrived at a net income of 201 million, a decrease of 5.9% or 30 million quarter-over-quarter.

One of the [indiscernible] macro headwinds, our diversified ecosystem has successfully sustained our financial performance. Now let me walk you through 3 key business highlights behind these results. First, the resilience of our diversified [indiscernible] ecosystem. Amid continued industry consolidations in the first quarter of 2026, we proactively optimized our business mix to strengthen risk management and compliance. Anchored by our diversified ecosystem, we continue to demonstrate strong operational resilience. Consequently, non-online consumer finance GMV, which encompasses off-line equine finance, fintech empowerment services and our e-commerce business grew to nearly 50% of our total GMV, up 42% sequentially, effectively offsetting the contraction in our online consumer finance business. This shift was largely fueled by our fintech empowerment or [indiscernible] model, where we partner with leading Internet platforms and banks on risk assessment and assume the corresponding credit risk.

With loan volume surging to around [ 21 million ], rather [ 21 billion ], [indiscernible] financial contribution is not yet fully reflected due to its lower pricing and advertise revenue recognition. However, the buildup of the [ Sunke ] model creates a robust rent pipeline, and it will improve our long-term asset quality and ensure steady profitability across market cycles.

The installment e-commerce business maintained its positive momentum, supported by stable transaction volumes and improving the gross margins, which I will elaborate later. At the same time, our offline inclusive finance and overseas business advance serving as additional as diversifiers for our broader use portfolio. Second, the steady development of our installment e-commerce business. Our installment e-commerce business continue to be deeply integrated into our ecosystem, providing seamless and convenient consumption scenarios and acting as a unique competitive advantage. Given the current macroeconomic environment, this segment continued to prioritize asset quality over asset expansion.

While demand remains strong in the first quarter of 2026, we deliberately moderated the growth to contain credit risk within our risk appetite. As a result, installment e-commerce GMV remained steady at 2.2 billion. Gross profit from the e-commerce business reached 208 million, representing a 24% increase, with gross margin expanded by 169 basis points sequentially to 9.4%. This solid performance was largely driven by the continued refinement of our e-commerce operations. Ultimately, the steady derivement of this segment not only generates reliable gross profit but also allows us to capture and serve the diverse consumption needs of our users, further diversifying our revenue streams and reinforcing our operating.

Third, prudent provision coverage. In the first quarter, our total credit cost, which encompasses 3 provisioning line items and fair value change of financial guarantee derivatives in our income statement, stood at 1.3 billion, up 0.8% sequentially. This increase was primarily volume-driven, alignment with the growth in our new loan origination. As Arvin noted, our risk indicators are stabilizing with risks for both existing and new loans trending downward from January through March, the supplementary provisions required for our existing portfolio were lower than in Q4.

To highlight our provisioning strength, let's look at the growth provision metric. By stripping out the net value impact of the fair value changes, growth provision offers a true picture of the capital we have reserved against our loan portfolio. Specifically, our gross provision ratio for new capital heavy loans stood at about 7.2%, comfortably exceeding our historical peak vintage charge-off rate. [indiscernible] coverage ratio was 258% in the first quarter.

To summarize, our diversified ecosystem has proven its value as a structural stabilizing. The solid progress in our fintech empowerment and e-commerce segments effectively offset the near-term pressure of consumer finance business, building a sustainable revenue pipeline for future quarters. Coupled with our conservative provisioning strategy, we have established a resilient foundation to navigate current and potential market uncertainties, ensuring steady operations across all cycles.

Now let's move on to our operating expense line items. On the cost and expense side, total operating expenses increased by 14% or 169 million to 1.4 billion, mainly due to the increase of sales and marketing expenses of 124 million, primarily reflecting our investment in ecosystem user engagement, alongside the upgrading of our service infrastructure to further improve consumer protection and overall user experience.

For balance sheet items, as of March 31, our cash position, which includes cash, cash equivalents and restricted cash, was approximately 3.3 billion. Shareholders equity remain solid at about [indiscernible] We expect a gradual recovery trend we saw in the first quarter to carry into the second quarter, modest [indiscernible]

[Interpreted] Overall, the industry is more mature and with a greater focus on compliance and user experience. For both challenge and o.acconomket, market space and opportunities remain. This gives us more room to build interest and high-quality way. Industry environment, we will continue to deepen our customer central approach to sell different customer segments. More specifically, we will keep improving customer experience, grow our high-quality assets, further optimizing our awesome asset mix and strengthen the overall risk resilience. At the same time, we will steadily promote the healthy development of our diversified ecosystem businesses.

We are also accelerating our efforts to explore new customer segments, new products and new business models. For example, going deeper into serving small and mid businesses owners and improving services for our prime customers. On consumer rights protection, we will put more focus on compliance process, covering the full process from product design disclosures to [indiscernible] services. Over the long run, we will seek to compliant operations and leverage our diverse business ecosystem to further enhance our operational efficiency. We believe this strategic positioning will help us navigate external changes and achieved stable operations and long-term sustainable growth.

[indiscernible] So overall, in the first quarter of 2026, the quality of both our new loans and existing loans retained an improving change. Regarding the specific metrics, compared to Q4 of 2025, day 1 delinquency ratio of total assets decreased about 7% [indiscernible] 30-day collection. [indiscernible] for new loans originated in Q1 is expected to decline around 6%. So you can see the overall rate risk to improve. Looking ahead to the second quarter of 2026, we will continue to optimize our asset mix and strengthen risk management, offering loans by enhancing [indiscernible] identification, total and maintaining the quality of new loans. This will help us to further reinforce the current downward trend that we have already seen in the risk metrics.

Our overall goal is to [indiscernible] risk strategy in the second quarter and which will set us up for recovery and high-quality growth for the rest of project.

We will now take our next question from the line of Judy Zhang from Citi.

[Interpreted] This is Judy Zhang from Citi. So in light of the changing regulatory environment, what's your outlook for the company's full year financial performance?

Okay. I will take the question. As a summary, if you look forward, ahead to 2026, there are still a lot of uncertainty in the macro environment. So we'll continue to take a prudent approach and keep strengthening our operational resilience. I really, at this time, can't really provide specific numbers. Maybe I can quickly walk you through a few key metrics and its trend.

First on the loan volume side, the online consumer fines may remain [indiscernible]. Thanks to the solid growth of our ecosystem business like our [indiscernible] empowerment and installment e-commerce platform, we would expect the total loan volume to stay relatively stable quarter-over-quarter. Second, on the revenue side. Because the fintech empowerment business recognize the revenue more gradually due to the accounting policy, so it will fully offset the near-term revenue impact from the contractions of the online consumer business. However, [indiscernible], having a larger contribution from these businesses will give us more stable revenue base, our asset quality continued to improve, resulting in the lower provision top-ups on the existing capital light business, which led to the increase in our [indiscernible] service revenue. So I would expect this trend to contribute positively to our revenue indicator.

Third, on the credit cost side. They should come down as risk continue to decline, assuming no major macro or regulatory changes. With that said, we'll remain prudent with our provisions. Fourth, on the expense side, due to the expansion of our ecosystem business, our continued investment in [indiscernible] of expenses increased slightly on a sequential basis in Q1. So going forward, we'll keep on driving operational efficiency, reduce costs where we can and aim to steadily optimize our expense ratio.

So put all these together, as a summary, overall for 2026, we continue to focus on making steady progress while mitigating the uncertainties. So we'll keep building a strong foundation for the long-term high-quality business.

We will now take our next question from Weijia Wang from Goldman Sachs.

[Foreign Language] This is Weijia Wang from Goldman Sachs. Could you please elaborate on the corporate plans to enhance shorter term?

[Interpreted] We have [indiscernible] on shareholder returns. The company plans to cancel 20 million ADS, which represents about 12% of our total outstanding shares. That said, the ongoing macro uncertainties, we have temporarily suspended new share repurchases for now. We always try to balance shareholder returns with capital efficiency. Going forward, we will stay flexible. The market conditions [indiscernible] and make sure our buyback only at the best of [indiscernible].

After we complete this repurchase program, we will actively consider launching a new one based on [indiscernible] is to steadily improve long-term demand for our shareholders. Through consistent and traction of [indiscernible] and initiatives, we will want our shareholders to share in the value we create.

We have now reached the end of the question-and-answer session. I would now like to turn the conference back to Will for closing comments.

Thank you. This conference is now included. Thank you for joining us today. If you have any more questions, let's not hesitate to contact us. Thanks again.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.

Good day, and thank you for standing by. Welcome to the Lexin Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Will Tan. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our fourth quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on our overall performance and the strategies of our business. Our CRO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Last, please note that all figures are presented in RMB terms and all comparisons are made on a quarter-over-quarter basis unless otherwise stated.

Please kindly note Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices.

With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Lexin.

[Interpreted] Hi, everyone. Thanks for joining us today for our fourth quarter 2025 earnings call. In the fourth quarter, we optimized our business operations within the new regulatory framework, successfully achieving our objectives of stabilizing scale and mitigating risk. During this period of industry adjustment, our unique business ecosystem demonstrated its differentiated advantages, leading to a significant rebound in active users.

Guided by our long-term oriented philosophy, we are seeing the resilience of our multi-business synergy become increasingly evident, further strengthening our ability to navigate business cycles. In the fourth quarter, our loan volume reached RMB 50 billion and revenue reached RMB 3 billion. Number of active users stood at 4.53 million with 884,000 new active users. For the full year of 2025, total loan volume was RMB 205.3 billion. Net profit was RMB 1.7 billion, representing a year-over-year increase of 52.4%.

Next, I will walk you through the key initiatives we have undertaken since the fourth quarter. First, we proactively aligned our operations with the new regulatory requirements, adhering to a high standard of compliance. Following the official implementation of the new regulations in Q4 and building on the earlier completion of business adjustments and system deployment, we remain focused on our customer-centric strategy to further optimize our product matrix and personalized service experience.

By operating prudently within the regulatory framework, we have not only enhanced our long-term sustainability and risk resilience, but also effectively connected financial services with market demand. Through our diversified business lines, including online consumer finance, installment e-commerce and off-line inclusive finance, we continue to support the real economy and foster healthy growth in consumer spending.

Second, we have comprehensively strengthened our risk management to ensure steady business development. Since the fourth quarter, the industry has faced an upward trend in credit risk. In response, we optimized our risk strategies and maintained stringent standards for new loan quality. By incorporating more real-time data dimensions, we have enhanced the proactiveness and precision of our risk identification, leading to a month-over-month improvement in risk indicators for new loans.

Regarding our existing portfolio, we focused on refined operations for high-quality assets. By optimizing credit line allocations and implementing a differentiated pricing framework, we enhanced both product competitiveness and the customer experience, ensuring the continued stability of our existing assets. Overall, we successfully stabilized our risk profile during the quarter with asset quality remaining steady and key risk indicators improving monthly. Since the beginning of 2026, several key risk indicators have shown a positive trajectory in January and February. Specifically, day 1 delinquency ratio of our total assets decreased by over 10% from its peak in October last year.

Third, our unique business ecosystem has demonstrated greater strength during this period of industry transition. Our installment e-commerce business remained deeply integrated with daily consumption scenarios. In the fourth quarter, we continued to optimize our supply chain, expanding our offerings across essential categories such as food, apparel and household goods. During major e-commerce events like Double 11 and Double 12, we ramped up our marketing efforts. Through initiatives such as interest-free promotions, we drove steady growth in both user engagement and transaction volume, further reinforcing our differentiated advantages in installment e-commerce.

During the quarter, we continued to invest in our customer acquisition capabilities, which effectively fueled growth in new users with credit line. At the same time, we focused on deepening engagement with high-quality existing customers, utilizing differentiated pricing and credit line strategies to drive a sustained rise in user activity. Furthermore, our off-line inclusive finance, tech empowerment and overseas businesses all achieved steady growth, further underscoring the overall resilience of our diversified ecosystem.

Fourth, we deeply integrated AI technology to elevate the user service experience. During the fourth quarter, we continued to advance our applications of large models. Our customer service AI agents are now successfully deployed in core scenarios, including credit approvals, transactions and repayments. These agents maintain a response accuracy of over 90% with an average response time of under 3 seconds. Notably, in the credit approval stage, the human intervention rate was only 3.4%, significantly boosting both efficiency and user satisfaction. Looking ahead, we will expand these automated services to nighttime hours to achieve seamless 24/7 coverage.

During the quarter, we further implemented large models in key risk management processes. For example, in compliance quality assurance, our AI-assisted system is gradually replacing traditional rule-based monitoring, raising our QA accuracy to 89%. In risk strategy, our strategy generation AI agents perform deep modeling of customer data to automate the creation and full process evaluation of differentiated risk strategies, consistently improving decision-making precision and response efficiency.

In user operations, our credit line adjustment AI agents accurately identify user needs during their dialogues with customers and provide self-service guidance. This not only reduces manual service costs, but also enhances the user experience. The company has always adhered to a user-centric service philosophy, positioning consumer rights protection as a core competitive advantage. In the fourth quarter, we continued to standardize our service processes and optimize intelligent routing, leading to a measurable improvement in overall efficiency and response times. We also refined our tiered customer service model, enhancing our self-service platform to drive higher user satisfaction.

During the quarter, a series of macro policies supporting consumption and the county-level economy were rolled out, anchoring the direction for industry development. We have always closely aligned with national policy requirements, fully leveraged our own advantages and increased investment in consumption scenarios and products tailored for micro and small business owners. Through measures such as interest-free and low-interest promotions, complemented by an enriched product supply and comprehensive services, we are delivering tangible support for the consumption rebound and injecting financial vitality into the growth of micro and small businesses.

As we enter 2026, we are optimistic about the market's development potential. We are well positioned to seize growth opportunities while upholding a high standard of compliance and a customer-centric philosophy. By deepening our diversified business ecosystem, we will continue to strengthen our operational resilience and our ability to navigate market cycles.

Next, I'll hand over the floor to our CRO, Arvin. Thanks.

[Interpreted] Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the fourth quarter. The fourth quarter of 2025 marked the full implementation of the new loan facilitation regulations. The resulting liquidity tightening across the sector created significant headwinds for both industry scale and risk performance. In response to the cyclical volatility, we maintained a disciplined approach to risk management throughout the quarter, increasing our mix of prime assets and optimizing our portfolio structure to ensure overall stability.

Specifically, in the fourth quarter day 1 delinquency ratio of total assets increased by 7% and 90 days plus delinquency ratio edged up by 3% quarter-over-quarter. On a month-over-month basis, our risk indicators saw a marginal decline in November and December after peaking in October, signaling that asset risk performance has begun to stabilize. In December day 1 delinquency ratio declined by 8% compared to October. We will sustain our rigorous risk controls through the first half of 2026 to reinforce this downward trajectory and gradually bring our asset risks back within our target risk appetite.

Next, I would like to walk you through the key risk management initiatives we have implemented during the fourth quarter. First, we continue to intensify the identification and management of high-risk customers. From a modeling perspective, we accelerated the iteration of our risk models by implementing automated weekly updates. By incorporating the most recent default samples into our training sets every week, we were able to more rapidly capture and learn the shifting characteristics of delinquent borrowers in the current market environment.

On the strategy front, we integrated a broader range of real-time data dimensions, including cross-platform borrowing, delinquency history, leverage ratios, personal income and employment stability. This allowed us to apply more stringent transaction interception and credit exposure controls to customers exhibiting frequent borrowing, excessive cross-platform debt or high debt-to-income ratios. Furthermore, we reinforced our day 1 delinquency management across the entire portfolio. We placed a particular emphasis on improving the identification of high-risk cohorts at the earliest stage of delinquency while optimizing the frequency of repayment reminders and strengthening our auto deduction efficiency and payment clearing infrastructure.

Second, we continue to refine our operational capabilities for high-quality assets, consistently increasing the mix of prime assets and optimizing our portfolio structure. At the data and modeling level, we continuously optimized our prime customer identification capabilities. We developed dedicated strategies, including credit line allocation, pricing and repayments tailored to prime segments, comprehensively enhancing our offer competitiveness. In addition, we deepened our one-on-one exclusive services for prime customers through account management services via instant messaging, interactive supplementary document submission and dedicated manual reviews for large ticket loans, we provided customized reoffer based on customer needs, thereby boosting customer satisfaction and retention.

Third, regarding our installment e-commerce business, we significantly intensified consumer support during the fourth quarter through initiatives tailored for the Double 11 and Double 12 shopping festivals. During these events, we provided dedicated temporary credit lines to support large ticket purchases, particularly in the 3C and consumer electronics categories. Additionally, for our top-tier prime customers, we launched 12- and 24-month interest-free installment campaigns to further accelerate high-quality volume growth. Looking ahead to the first quarter of 2026, we will continue to strengthen risk controls over existing and new loans while intensifying our efforts in managing and phasing out high-risk segments to ensure a sustained downward trend in risk levels.

Next, I will hand over to our CFO, James, to provide a review of the company's financial performance for the fourth quarter.

Hi, everyone. Thanks, Arvin. I will now provide a detailed overview of our fourth quarter financial results. Please note that all figures are presented in renminbi terms and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. The fourth quarter marked a pivotal transition for the industry as the new regulatory framework officially came into force. We have strictly followed the regulatory requirements, ensuring that the comprehensive interest rate for all new loans is capped at or below 24%. Following the implementation of these new regulations, we observed elevated volatility in industry-wide credit risk. This complex market environment created challenges for our performance.

In the fourth quarter, our net income recorded RMB 214 million. This sequential decrease was primarily driven by the pricing adjustment to strictly complying with the 24% cap, coupled with the contraction in loan volume resulting from our prudent strategy to proactively manage risk exposure. Furthermore, heightened market volatility led to increased credit costs and more conservative provisioning. Lastly, operating expense did not decline proportionately with the revenue due to the fixed cost and expense recognition seasonality.

Now let's take a holistic review of our fourth quarter financial results. First, net revenue of the credit business, which is derived by adding up credit facilitation service income and the tech empowerment service income, net of credit costs, including provisions and fair value changes and the funding cost was RMB 1.4 billion, representing a RMB 586 million decrease quarter-over-quarter. The overall decline was primarily driven by a RMB 132 million drop in credit facilitation service income stemming from contracted loan volume in our online consumer finance business that decreased overall pricing.

During the fourth quarter, weighted average APR of new loans originated was 21.7%, a 140 basis point decline quarter-over-quarter. This was compounded by approximately RMB 185 million increase in credit costs, reflecting elevated risk volatility and our prudent provisioning. Additionally, our tech empowerment service income decreased by RMB 286 million, mainly due to the wind down of the ICP business, although this was partially offset by revenue growth in our value-added services.

Second, net revenue of the e-commerce business, defined by e-commerce revenue net of cost of inventory sold increased by RMB 56 million to RMB 167 million. So the total net revenue summing the credit and e-commerce business added up to RMB 1.5 billion, a 26% or RMB 530 million decrease quarter-over-quarter.

On the expense side, operating expenses, including the sales and marketing, research and development, general and administrative expenses, processing and servicing costs decreased by 11% or RMB 147 million to RMB 1.2 billion. As I mentioned earlier, because the 11% reduction in operating expenses was outpaced by the 26% decline in net revenue, the difference weighed on our net profit for the quarter. Tax and others decreased by RMB 76 million to RMB 86 million. Consequently, total expenses added up to RMB 1.3 billion, a decrease of RMB 223 million. By deducting total expenses of RMB 1.3 billion from the total revenue of RMB 1.5 billion, we arrived at a net income of RMB 214 million, a decrease of RMB 307 million quarter-over-quarter. Although the complex environment posed challenges to our performance, we demonstrated our operational resilience.

Next, I will elaborate on 3 key business highlights that underscore our strength during this transitional period, the resilience of our business ecosystem, our prudent provision coverage and further reductions in funding costs, the resilience of our business ecosystem. Amid the cycle of adjustment, while our online consumer finance business was significantly impacted, other business lines actually provide critical stability, specifically regarding our e-commerce business, although the GMV declined slightly as a result of our prudent operational strategy, gross profit continued to achieve steady growth, recording RMB 167 million during the fourth quarter. Notably, the e-commerce gross margin calculated as the gross profit divided by GMV reached 7.8%, representing a quarter-over-quarter increase of 295 basis points.

In parallel, our tech empowerment business continued to expand, acting as a vital counterbalance to the volume decline in the online consumer finance business. And this model, where we work together with the Internet super platforms like ByteDance and the banking partners, we assist our banking partners with customer risk assessment while assuming the corresponding credit risk. Given the better quality of this consumer base, these loans carry lower pricing.

It is worth highlighting that since this model recognized revenue over the loan tenure rather than upfront and it carries lower take rate consistent with its lower risk nature, it creates a temporary time lag between the revenue recognition and the loan volume. However, this mix shift is accretive to our long-term asset quality and steady financial performance. Furthermore, our off-line inclusive finance business progressed steadily, maintaining stable risk performance and acting as a stabilizer for our overall portfolio.

The resilience of our business ecosystem demonstrates that we have built a comprehensive product matrix that serves a broad spectrum of the market. Our business lines now cover a wide range of interest tiers from competitive rates for prime users to standard rates for the mass market. This allows us to effectively match users with the right products, maximizing our reach and retention amidst the evolving regulatory environment.

Second, prudent provision coverage. In the fourth quarter, impacted by heightened volatility in industry risk, our total credit costs, including the 3 provision line items and the fair value changes of financial guarantee derivatives in the income statement rose by RMB 185 million to RMB 1.3 billion. While we observed early signs of improvement in December following our credit tightening measures, overall risk indicators remain at elevated level, and we expect that the industry will need time to fully digest risks. Consequently, we adopted a more prudent approach to provisioning for new loans facilitated during this period.

To better illustrate our provisioning strength, I'd encourage you to focus on the gross provision, which excludes the impact of the net accounting policies in item change in fair value of financial guarantee derivatives and loan values in the income statement. Specifically, the gross provision ratio of new loans calculated as the gross provisions divided by the capital-heavy new loan volume increased by 27 basis points from the third quarter to 7.24%. Please note that for an apple-to-apple comparison, this volume metric excludes loans from tech empowerment services. This level stands well above our historical peak vintage charge-off rate of around 6.1%. We view this elevated provisioning ratio, not just as a reflection of the current volatility, but also as a buffer to future-proof our performance against potential macro uncertainties.

Third, the optimization of funding costs. With the implementation of the new policy, institutional funding that was previously allocated to segments priced above 24% was released in the fourth quarter, resulting in ample funding supply. Consequently, our funding cost declined substantially from 4.4% in third quarter to 3.8%. Looking ahead to 2026, as the industry landscape shifts to a new normal stage and the new regulatory framework, we anticipate a structural flight to quality. Funding will increasingly congregate towards platforms that are fully compliant and possess strong risk management capabilities. Currently, we have successfully secured our place on a wide list of our key funding partners, laying a solid foundation for our steady development in the future.

To summarize, the above 3 highlights mainly impacted the net revenue side of the income statement. On the cost and expense side, total operating expenses reduced by 11% or RMB 147 million to RMB 1.2 billion, mainly due to the decrease of sales and marketing expenses, reflecting our disciplined approach to user acquisitions during this industry transition. However, our total operating expense reduction was slower than the decline in the net revenue. This was primarily due to fixed costs and seasonal impacts.

For balance sheet items, as of December 31, our cash position, which includes cash, cash equivalents and restricted cash was approximately RMB 4.0 billion. Shareholders' equity remained solid at about RMB 12 billion. To conclude, I'd like to reaffirm our commitment to enhancing shareholder value. As of March 2026, we have repurchased $39 million worth of ADS alongside the CEO's personal purchase of over USD 10 million worth of ADS.

On the dividend front, our Board of Directors has approved a dividend of USD 0.188 per ADS, bringing our total dividend for 2025 to USD 0.2382 per ADS. This represents a more than 100% increase compared to USD 0.182 in 2024. On the foundations of our current shareholder return policy, we continue to evaluate opportunities and explore different ways to ensure we deliver optimal value to our shareholders. Looking ahead, while our asset quality continues to show positive momentum, we maintain a prudent approach given the ongoing macroeconomic uncertainties. We expect total loan origination to remain relatively stable in the first quarter of 2026.

That's all our prepared remarks for today. Operator, we're now ready to take questions.

[Operator Instructions] First question is from Alex Ye from UBS.

[Interpreted] So I have 2 questions. The first one is given the new regulatory environment, so how is Lexin's development strategy going to change going forward? And then second question is, could management share with us some of the key operating performance outlook for this year?

[Interpreted] So this is the translation for Jay's answer. With the full implementation of the new regulation, the industry has entered a new phase centering on quality and compliance. Industry resources will increasingly concentrate on platforms that demonstrate both quality and compliance. Under such new regulatory environment, the key to Lexin's business resilience lies in our user-centric approach and our ability to serve customers across different segments. Our unique business ecosystem enable us to engage and serve users with varying risk profiles and achieve stable growth amid market fluctuations.

Specifically, we actively respond to regulatory guidance by adhering to a high standard of compliance. Building on the current regulatory requirements, we further lowered the overall loan rates. In the fourth quarter, the average loan rate on our new loans was 21.7%, which will be further lowered in 2026. Furthermore, we remain deeply committed to the off-line inclusive finance market and serve the micro and small business owner segment. Leveraging our installment e-commerce platform, we enriched the supply of products on our platform across diverse and essential life service categories to tap into the consumption potential of our users. Meanwhile, with the steady expansion of our technology solution empowerment and overseas business, the revenue structure is becoming more diversified, strengthening our long-term operational resilience under the new regulatory framework.

Last but not least, we adhere to a user-centric service philosophy, being consumer protection as a key part of enhancing our operational resilience. Moving forward, we will continue to improve efficiency and experience of our customer service through process standardization, intelligent task routing and refined operation, further strengthening consumer rights protection.

Regarding the second question about the outlook of our business operation in the year of 2026. With risk level stabilizing, we will adopt a more proactive user acquisition strategy. By enhancing the customer experience and product competitiveness, we will focus on high-quality segments to bring our business back on to a path of steady normalized growth, more specifically on our key operational initiatives.

In terms of products and customer segments, we will focus on the refined management of high-quality assets. By optimizing credit line allocation and building a differentiated pricing system, we aim to strengthen both product competitiveness and customer experience. This will reinforce our user-centric operational capabilities to serve different segments of customers and enable us to expand and better serve prime segments.

In terms of asset quality, we will improve our customer mix and enhance asset quality by ramping up on acquisition of more high-quality customers. By far, we have already observed early signs of risk stabilization and improvement in asset quality. Barring any new macroeconomic shocks, we expect the industry to gradually digest the existing risk, bringing overall risk metrics back within our risk appetite. This will lay a solid foundation for proactive customer acquisition and business recovery.

And in terms of loan origination, we'll continue to invest in and strengthen our customer acquisition capabilities. Driven by our improved product competitiveness and proactive customer acquisition strategy, we expect our loan volume to gradually return to a normalized growth range following a period of bottoming out and stabilization.

Next question is from Judy Zhang from Citi.

[Interpreted] Now let me translate the 2 questions. The first question is regarding on the risk outlook. Can management share with us the company's latest risk performance and the future outlook? And the second question is what is the outlook for the company's full year financial performance for this year?

[Interpreted] This is the translation for Arvin's answer. The fourth quarter was the first quarter after the implementation of the new regulation and was a critical period for the entire industry to digest the impact of the new regulation. While industry-wide risk has begun to show signs of stabilizing, it will take some time for this risk to be fully clear and return to the level before the first half of 2025. In response to this round of risk cycle, we continue to strengthen our risk management in Q4 by increasing the proportion of high-quality assets and optimizing our asset structure, ensuring risk remain under control.

Regarding the specific performance, although the overall risk indicator in Q4 was higher than that in Q3, on a month-over-month basis, starting from the month of November, we have started to see rates trend down for multiple months consecutively, signaling a downward trend, and we expect this downward trend to continue. Despite this improvement, it's important to note that risk levels remain elevated in the fourth quarter. Looking ahead to the first quarter of 2026, we will continue to strengthen risk control over loans while intensifying our efforts in managing and phasing out high-risk segments to ensure a sustained downward trend in risk levels and gradually bringing the loan risk back within our target risk appetite in the second half of 2026.

Okay. I will take on the second question regarding the financial guidance. The fourth quarter of 2025 was indeed one of the most challenging periods absorbing the concentrated impact of several factors. This include revenue compression from pricing adjustments, the deliberate scale down of loan volume in our consumer finance business, a shift in the pace of revenue recognition driven by changes in our business mix due to the tech empowerment business volume growth, short-term uptick in our credit risk and the seasonal impact on our operational expenses.

For the first quarter of this year, as I stated earlier, we expect the loan volume of originations to be at a similar level as our fourth quarter. Given the ongoing macroeconomic uncertainties and lower visibility, we are not providing a full year financial guidance for 2026 at this point. However, I would like to share a few variables that may impact our financial performance.

Looking ahead, our full year financial performance will be primarily influenced by the following dynamics. On the revenue side, number one, volume. While our overall loan volume will remain stable or even grow a little bit, the short-term revenue contribution from a tech empowerment business, Shuke Ye will be relatively modest. This is due to its lower credit cost, lower pricing profile and relatively slower revenue recognition accounting schedule. Second is the pricing. The proactive downward adjustment to our overall pricing will also continue to weigh on all of our top line.

On the cost and expense side, number one, funding costs. In the near term, frequent regulatory window guidance directed at funding partners has led to a somewhat tightened funding supply in the first quarter. Moving forward, our funding costs will be influenced by a combination of the broader regulatory environment, the quality of our customer cohorts and the overall funding liquidity. Second, the credit cost. As risk progressively stabilize and we pivot towards higher-quality customer cohorts, we anticipate a gradual optimization of our credit cost while maintaining an ample provision. Third point is the operating expenses. We'll persistently drive cost reduction and efficiency initiatives to optimize our operational leverage and steadily lower our operating expenses.

So in summary, in view of the macro uncertainties, we will maintain prudent in our overall business strategy and execution at the same time, optimize the profit and the shareholder value and strive to build a long-term healthy and sustainable business.

Next question is from [ Claire Wang ] from Goldman Sachs.

[Interpreted] I'll quick translate my question. What's the company's future plan for enhancing shareholder returns in terms of both share buyback and cash dividend.

[Interpreted] So first, starting from the second half of 2025, our dividend payout ratio was raised to 30% of outstanding annual net profit. This actually puts us at the forefront of the industry. On top of cash dividends as of today, we have repurchased USD 39 million worth of ADS, completing 80% of our current repurchase program. I have also fully executed my personal USD 10 million share repurchase plan. This action reflects the management's firm confidence in the company's outlook and its long-term intrinsic value.

Following this earnings release, we will continue to execute the remaining portion of our share repurchase program, delivering our commitment to enhance shareholder returns. Looking ahead, we will closely monitor market dynamics and based on our actual operational needs, actively explore diverse initiatives, including further repurchases to create sustainable value for our shareholders.

Thank you. I will now hand the conference back to Will Tan for closing comments.

Thank you. This conference is now concluded. Thank you for joining us today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good day, and thank you for standing by. Welcome to the Lexin Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised, today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Will Tan. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our third quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website.

Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on our overall performance and strategies of our business. Our CRO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies today's call as we will be making forward-looking statements. Last, please note that all figures are presented in renminbi terms, and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. Please kindly note, Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices.

With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Lexin. Please.

[Interpreted] Hi, everyone. Thanks for joining us today for our third quarter 2025 earnings call. In the third quarter, we efficiently completed our business adjustments to comply with the new regulation. The smooth transition was mainly attributed to the company's strong risk management capabilities that we've been enhancing over recent years and the resilience of our business ecosystem. This demonstrates our long-term oriented development philosophy and our strong resilience in navigating business cycles, effectively mitigating the impact of industry fluctuations on the company.

Against the backdrop of industry fluctuations, we delivered solid performance in the third quarter. Loan volume reached RMB 50.89 billion. Revenue reached RMB 3.42 billion. Net profit was RMB 521 million, up 2% quarter-over-quarter and 68% year-over-year. Net profit take rate stood at 2.01%, increasing by 9 basis points quarter-over-quarter and 92 basis points year-over-year.

We believe that the implementation of the new regulations will further raise industry entry barriers and drive the industry toward a healthier and more orderly development. Our unique advantages in business ecosystem synergy and customer-centric operation system will position us more favorably in the future. We are confident that our long-term investment in the fundamental capabilities and the ecosystem businesses will gradually turn into our distinctive and powerful advantages.

We have always placed great emphasis on shareholder returns. As we announced previously, the dividend payout ratio was increased from 25% to 30% of the net profit starting from the second half of this year. In addition to the cash dividend, the company's share repurchase plan and my personal share purchase plan are progressing well with each initiative, now more than halfway completed.

Next, I will walk you through the key initiatives we have made in the third quarter. First, we strengthened user categorization and risk identification and took early actions to address the industry risks. In light of the industry risk trends in the third quarter, we enhanced user categorization and risk identification and took proactive measures to manage risk, effectively balancing business volume and asset risk.

During the quarter, leveraging our historical cycle models, we systematically phased out users highly sensitive to cyclical impacts and exhibiting instability and adjusted our risk management strategy accordingly. We further refined our customer segmentation and implemented tailored pricing strategies accordingly. As a result, new assets in the third quarter maintained a balanced risk return profile.

Second, we enhanced user experience by adopting a customer-centric approach. In the third quarter, we upgraded our products and management capabilities, and the development of our customer care system has yielded positive results. This allowed us to fulfill the financial and service needs of different customer segments.

During the quarter, we collaborated with financial institutions to optimize funding supply and expanded the coverage of flexible repayment solutions, such as flexible borrowing and repayment and bullet loans. In addition, we provided customized reoffer to improve customer satisfaction and loyalty, effectively enhancing user retention. As a result, the proportion and contribution of high-quality customer continued to grow.

Third, we accelerated our AI technology deployment leveraged integrated AI agents to drive digital transformation. In the third quarter, we further advanced our AI initiatives. Our self-developed large model, Lexin GPT, has incorporated multidimensional data providing AI agents with stronger decision-making capabilities under different scenarios. This has improved the accuracy of user request identification by over 20% and significantly enhanced request solution efficiency.

During the quarter, AI agent has been applied in multiple areas such as risk management, credit granting and repayment, and we'll continue to expand to other areas. [ Belong ] to the industrial integrated AI agent has facilitated data connectivity and task coordination in different scenarios, thereby creating stronger business synergies. We have laid a solid foundation for AI-driven digital transformation, providing robust technological support for improving efficiency, revenue growth and user experience optimization.

In the third quarter, different business units within our ecosystem work together to create synergies and collectively reinforce the resilience of our ecosystem. Online consumer finance business targets at high-quality customers and focused on optimizing service experience, significantly enhancing user engagement and retention. Installment e-commerce business targets at young customers in key consumption scenarios.

We continue to refine the supply chain system of our e-commerce platform, GMV, for essential daily consumer goods, grew 58.5% quarter-over-quarter and 133.8% year-over-year during the recent Singles Day Shopping Festival. The total GMV of e-commerce platform increased by 38% year-over-year, with transaction volume for essential daily consumer goods surging by 237% year-over-year.

Offline inclusive finance focuses on small and micro business owners in lower-tier markets. The asset quality of inclusive finance business remained stable in the quarter, validating the value of the lower-tier markets. We will continue to increase investments in off-line markets and further improve its operations.

Both tech empowerment business and overseas business achieved steady growth in volume during the quarter. The company has always adhered to a user-centric service philosophy, positioning consumer rights protection as a core competitive advantage. In the third quarter, we comprehensively strengthened our consumer rights protection system across multiple dimensions, including policies, products and services.

In terms of policies, we integrated consumer rights protection into our sustainable development strategy, implementing measures across all business processes through various mechanisms. In terms of products and services, we actively responded to user needs by leveraging technological means, such as online customer service center and AI-empowered customer support to improve service efficiency and quality. We also proactively gathered user feedback for data analytics aiming to enhance user satisfaction at the sorts. In response to frequent violations of consumer rights by illegal activities, we actively followed regulatory requirements and collaborated with the industry to combat such activities, which has achieved positive results.

With the new regulations taking effect in the fourth quarter, the industry is now on a healthier and more sustainable path. Having completed our business adjustments, we are well positioned to capture opportunities arising from the industry adjustments by increasing investments in ecosystem businesses and drive steady growth. Looking ahead, we are confident in achieving stable performance growth.

Next, I'll hand over the floor to our CRO, Arvin. Thanks.

[Interpreted] Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the third quarter.

In the third quarter, industry uncertainty remained elevated. With the new regulations officially took effect in October, industry-wide liquidity tightened further on a month-over-month basis in the fourth quarter. Impacted by the broader industry trends, our day 1 delinquency ratio and the collection rate of loan balance saw a minor increase. Thanks to the proactive measures we've taken to enhance risk control and mitigate risk starting from the second quarter, the overall risk volatility remains manageable. In response to the complex industry environment, we have further tightened risk controls over high-risk customers by phasing out risky accounts and reducing credit lines. These measures have helped keep new loan risks manageable and ensure full compliance with regulatory requirements. Meanwhile, we doubled down on serving prime customers to promote the growth of high-quality assets.

Let me introduce the key initiatives we've taken in the third quarter. First, during the third quarter, we further enhanced risk control measures for high-risk customers. From a credit model perspective, we enhanced data mining on key variables, such as multiple borrowing, pricing preference and income verification to enhance identification of customers sensitive to industry fluctuations. In the meantime, by integrating the latest risk trends and optimizing our customer credit behavior time series model, we were able to identify anomalous signals accurately and swiftly, further enhancing the identification of high-risk customers.

From risk strategies perspective, we continue to intensify management of high-risk assets. We systematically phase out customers with excessive share debt exposure, multiple borrowings and high-risk profiles, and reduced credit line of borrowers with weak repayment capacity or those vulnerable to liquidity tightening.

Second, in the third quarter, we continued to enhance our operational capabilities tailored to prime customers. In terms of model and enhancement, we operated multidimensional models, including demand, response and churn models, and make targeted investments in our outreach approach, credit line granting and pricing alignment to ensure service quality. Also, we have reinforced our customer-centric approach to enhance the customer experience for prime customers.

In terms of credit line, we continue to maintain our offer competitiveness. In terms of pricing, we implemented product-based pricing to reactivate dormant and [ churned ] customers. In terms of repayment methods, we introduced tailored solutions like flexible borrowing and repayment and bullet loans for prime customers. Furthermore, we enhanced one-on-one services for prime customers by providing customized re-offers, further boosting customer satisfaction and loyalty. Thanks to these initiatives, loan volumes from prime customer segments achieved month-on-month growth in the third quarter.

Third, in the installment e-commerce business, our risk management system has been gradually refined with further strengthened risk identification capabilities. In the third quarter, in light of external uncertainties, we proactively adjusted the growth pace of our installment e-commerce business to strike a balance between scale and risk and to achieve sustainable business development. We've strengthened the risk criteria of our installment e-commerce business, proactively scaling back exposure to high-risk and sensitive customers. At the same time, we selectively provided support for categories such as high-quality consumer electronics by allocating dedicated credit lines, which help drive e-commerce GMV growth. Looking ahead to the fourth quarter, we will dynamically adjust our strategies based on the industry risk trends to ensure steady, healthy and sustainable business growth.

Last but not the least, in the development of intelligent risk control tools, we've achieved remarkable progress in building the next-generation smart risk control system. The risk control intelligent agent for credit decision-making empowered by larger scale models has been launched. It enables full process automation and intelligence from customer targeting, segmentation and strategy formulation to results evaluation, marking a paradigm shift from quantitative driven to AI-driven risk management. This has significantly enhanced the efficiency and effectiveness of credit decision-making.

In the fourth quarter, the impact of the new regulation is expected to persist, characterized by industry-wide liquidity tightening and risk fluctuations. As such, business volume and risk performance are expected to remain under pressure in the first half of the fourth quarter and may gradually stabilize and improve in the second half. In response, we will continue to strengthen risk identification and enhanced management of high-risk assets in order to ensure risk fluctuations under control, laying a solid foundation for steady and sustainable business operations.

Thanks, Arvin. I will now provide a detailed overview of our third quarter financial results. Please note that all figures are presented in renminbi terms, and all comparisons are made on the quarter-over-quarter basis, unless otherwise stated.

As Jay mentioned earlier, to proactively adapt to the evolving regulatory environment, we initiated a business adjustment in the third quarter. While this adaptation temporarily led to declines in loan volumes and overall pricing, we leveraged our business ecosystem to effectively mitigate the impact. Despite ongoing [indiscernible] adjustments and industry credit risk volatility related to the new policy, we delivered steady net profit growth in the third quarter.

Our net income grew by 2% quarter-over-quarter and 68% year-over-year to reach RMB 521 million, a record high in the last 15 quarters. Our net income margin increased to [ 15% ] from 14% last quarter. Our net income take rate increased 9 basis points to reach 2.01%. We have realized the net income take rate goal of achieving over 2% by year-end ahead of the original schedule as we communicated earlier this year. This underscores the company's results and improved ability to execute on our business objectives.

Now let's take a holistic review of our third quarter financial results. First, net revenue of the credit business, which is derived by adding up credit facilitation service income and tech empowerment service income, net of credit cost, including provisions and fair value changes and the funding cost reached RMB 1.9 billion, a 3% or RMB 59 million decrease quarter-over-quarter. The decrease was primarily attributable to an increase in credit costs of approximately RMB 40 million, reflecting continuously strengthened provisioning.

Second, net revenue of the e-commerce business, defined by e-commerce revenue. Net of cost of inventory sold increased by 14% or RMB 14 million to RMB 111 million. So the total net revenue summing the credit and e-commerce business added up to RMB 2.1 billion, a 2% or RMB 46 million decrease quarter-over-quarter.

Operating expenses, including sales and marketing, R&D, G&A, processing and serving costs decreased by 4% or RMB 57 million to RMB 1.4 billion. Tax and others increased by 1% or RMB 1.8 million to RMB 162 million. The total expenses added up to RMB 1.5 billion, decreased by 3% or RMB 56 million. By deducting total expenses of RMB 1.5 billion from the total net revenue of RMB 2.1 billion, we get net income of RMB 521 million, an increase of 2% or RMB 10 million quarter-over-quarter. Given the backdrop of the pending regulation and the associated industry credit risk volatility, it was not an easy task to achieve this record high profit in the third quarter.

During the net profit growth, driving this is the resilience of our business model and the 3 key factors: one, our operational agility demonstrated by a smooth transition between the capital light and capital heavy models; two, our installment e-commerce steady growth and the profit contribution; three, our solid financial position underpinned by the adequate and prudent provisioning.

Next, I'm going to elaborate a little bit more on these 3 highlights. First, our operational agility demonstrated by smooth transitions between the capital light and the capital heavy model. In the third quarter, in order to meet the new regulatory requirements, we started to transition our business by gradually reducing capital light business volume. By October 1, we have completely stopped facilitating loans with APRs above 24% and were fully compliant with the new rules. As a result, in Q3, the mix of capital light loan volume further reduced from 20% to 13%, while the ICP business only accounted for 8.5% of the new loans.

As the new regulatory framework, we continue to serve a select group of long-tail clients using the capital-heavy model. As such, the mix of capital-heavy loan volume increased from 80% to 87% of the total new loan volume, largely offsetting the decline of ICP volume. Thanks to the smooth transitions between the 2 models, total loan volume only saw a modest decrease of 3.7% compared to the second quarter.

As ICP business primarily serves long-tail customers, it naturally bears higher pricing, therefore, the wind-down of ICP business had a negative impact on our overall pricing, which was partially offset by the lower funding costs associated with the capital heavy model.

Driven by the above factors, our tech empowerment service income, which represents income from capital light model and value-added services, decreased by 45% or RMB 374 million. While our credit facilitation service income, which mainly consists of income from capital heavy model, increased by 15.3% or RMB 347 million. As a result, revenue from credit business only decreased by 1% or RMB 27 million despite a loan volume decrease of 3.7% in the third quarter, demonstrating our operational agility to navigate regulatory changes.

Second, steady growth of e-commerce business and its growing contribution in the third quarter. Despite strong demand driven by credit availability for long-tail customer segments since the second quarter, we observed an industry-wide risk volatility in the third and fourth quarter. In response, we prudently slowed down the growth of e-commerce loan volume as we prioritize quality rather than volume of the assets. As a result, our e-commerce loan volume grew by [ 50% ] sequentially to RMB 2.3 billion. For the upcoming fourth quarter, we'll continue to keep a close eye on the asset risk performance and strike a balance between the volume growth and asset quality.

As a reminder, if you look at the e-commerce revenue in our P&L, it recorded a decline of 29% to RMB 345 million despite the e-commerce GMV growth of [ 15%]. This is caused by the accounting treatment difference due to the continued volume shift to third-party sellers from company direct sourcing model. For third-party sellers, only platform service fee is recognized as revenue, rather than the entire transaction amount and the direct sourcing model. In the third quarter, third-party seller model accounted for [ 85% ] of e-commerce GMV compared to 75% from last quarter.

As mentioned earlier, our e-commerce business generates 2 profit streams, mainly the gross profit from selling merchandise and interest income from loan installment services. In the third quarter, gross profit reached RMB 111 million, representing an increase of 14%. The growth in our e-commerce business gross profit has not only enhanced our overall profitability, but also expanded our targeted long-tail user segments, thereby further mitigating the impact of our business model transition. Going forward, we will continue to grow our e-commerce operations prudently and fully leverage its unique advantages and the new regulatory environment.

Third, we continue to maintain a robust financial position, characterized by adequate and prudent provisioning. Our total provisions saw an increase, while the overall asset quality remained healthy, evidenced by a 15 basis point improvement of 90-day delinquency ratio to 3.0%. However, as the industry transitions towards the new regulatory framework, we observed an increased the volatility in early risk indicators starting from September. While we consider the fluctuations to be temporary, the whole industry may need some time to fully absorb the impact, and we expect the industry-wide risk volatility to continue into the fourth quarter. In response, we have sustained our strategy of setting aside ample provisions to ensure a strong buffer during the transition period.

In the third quarter, our credit cost, including 3 provision line items and fair value changes on financial guarantee derivatives, rose 4% or RMB 40 million to RMB 1.1 billion. Due to the net accounting policy we've adopted for the item change in fair value of financial guarantee derivatives and loans and fair value, the actual full provision we set was partially offset by the guaranteed income and recorded as a net amount in our P&L. As such, the reported item only represents part of the actual full provision. If excluding the impact of the net accounting policy and the recovering the growth provision, the full provision ratio of new assets calculated by dividing gross provision by capital-heavy loan volume, increased 6 basis points from the second quarter to 6.97%, well above the historical highs of vintage charge-offs. As Arvin mentioned, we continue to closely monitor asset performance and utilize various post-lending management tools to strengthen collections, while maintaining ample financial buffer to navigate through the credit cycle.

As a summary, the above 3 highlights impacted net revenue side of the income statement. In short, total revenue reached RMB 3.4 billion, representing a decrease of 5% quarter-over-quarter. This was mainly due to a 29% decrease in e-commerce platform service income, which was caused by ongoing shift in the e-commerce business model and the corresponding net versus growth adjustment in the accounting treatment.

On the cost and expense side, total operating expenses, which include processing and servicing costs, sales and marketing expenses, R&D and G&A expenses, reduced by 4% to RMB 1.4 billion, reflecting [indiscernible] of user acquisition costs during the uncertain times of business transition.

For balance sheet items, as of September 30, our cash position, which includes cash, cash equivalents and restricted cash, was approximately RMB 4.3 billion. Shareholders' equity remained solid at about RMB 11.8 billion.

Looking ahead, as Q4 marks the first quarter after the new regulation framework came into force, we expect industry-wide risk fluctuations to remain for some time before the industry enters into a new normal stage. In light of this, we'll continue to adopt a prudent operational approach, prioritizing regulatory compliance and asset quality over business expansion. For the fourth quarter, we expect to see moderate quarter-over-quarter decline in loan volume. Impacted by the ongoing credit risk volatility, net income and net income take rate will see a sequential decrease. We expect to see more clarity and certainty of credit risks and the profit outlook may be at the close of the fourth quarter.

To conclude, I'd like to reaffirm our commitment to enhancing shareholder value. In addition to our semi-annual dividend, we'll continue to execute our share buyback program. As of October, we have repurchased $25 million worth of ADS, alongside the CEO's personal purchase of over USD 5 million worth of [ shares ]. On the foundation of current shareholders' return policy, we will continue to evaluate opportunities and explore different ways to ensure we deliver optimal value to our shareholders.

That's all our prepared remarks for today. Operator, we are now ready to take questions.

[Operator Instructions] First question today is from Alex Ye from UBS.

[Interpreted] First one is regarding the new regulation on the loan [indiscernible], which has come into effect in October 1. Could you share us more color on what impact does it have on the business operations?

Second question is on maybe you can share more color on the development strategy and outlook of the e-commerce business?

[Interpreted] The translation for Jay's remarks. In the third quarter, we proactively made business adjustments to comply with the new regulation. On October 1, we have stopped underwriting loans with APR above 24% and ensure the business compliance. All new loans issued by the company carry an APR at or below 24%. After shifting to business with pricing below 24%, we gave up higher risk customers, which have some impact on both business volume and average loan pricing.

Following the implementation of the new regulation, industry-wide risk have increased due to tighter funding. Starting in September and October, most platforms stop offering products with APR above 24%, leading to significant short-term volatilities and risk. Although the overall impact remain manageable, the industry [ needs ] some time to fully digest the associated credit risk. For Lexin, as we have taken effective measures, our risk performance for new loans or existing loan portfolio have shown signs of stabilization and improvement now, validating the effectiveness of our risk management system.

In the long run, the new regulation will pave the way for a more compliant, healthy and sustainable stage of high-quality development in industry. When the regulatory framework becomes clearer, market resources will be increasingly concentrated towards leading compliant platform with strong risk control capabilities and stable operations.

Lexin has always adhered to a customer-centric business philosophy, prioritizing compliance operations, asset quality and prudent development. Furthermore, it's worth noting that Lexin's diversified business ecosystem has demonstrated strong resilience in adapting to the new regulation. More specifically, our online consumer finance business is progressing steadily and has been included in a wire list of all major financial partners, paving the way for future development.

Our offline inclusive finance business focuses on small and micro business owners in lower-tier markets. This asset quality remained stable in the quarter, validating the value of the lower-tier markets. In [indiscernible] e-commerce business targets at young segments in key consumption scenarios for building the consumption and financing demand of long-tail customer segments through innovative model. Both set empowerment and overseas businesses achieved stable volume growth in the quarter. Under the new regulatory environment, Lexin will gradually unlock the unique competitive advantages of its business ecosystem.

As a crucial component of Lexin's ecosystem, our installment e-commerce business will continue to play a key role in consumer -- in customer acquisition, engagement and expanding our operational outgrowth.

In terms of business development strategy, over the past year, we have comprehensively upgraded the e-commerce platform supply chain, introduced branded merchants from various industries and expanded [indiscernible] to meet user essential daily consumption.

In the third quarter, the transaction volume of essential lifestyle product categories increased by 58.5% quarter-over-quarter and 133.8% year-over-year. During the recent [ double 11 ] shopping festival, the e-commerce GMV also experienced significant growth. Meanwhile, leveraging the e-commerce platform independent risk management [indiscernible] to balance business quality with [indiscernible] we will continue to optimize and expand our product categories on our platform to meet users' consumption and financial needs while effectively managing risk, further expanding our operational model.

In terms of development pace, we have consistently adhered to the principle of prudent operation and prioritized asset quality. The third and fourth quarters, as we observed increased industry-wide risk fluctuation due to actively moderated growth pace of our installed [indiscernible]. In the near term, given the industry rate do require time to stabilize, we will continue to exercise caution in growing our installment e-commerce business. When industry-wide credit rate show size of stabilization, we will gradually resume the growth pace in order to capture the next phase of rapid expansion opportunities.

We will now take the next question. And this is from Judy Zhang from Citi.

[Interpreted] So during the transitional period before and after the implementation of the new regulation, the industry credit risk has already fluctuate significantly. And the company the updated the risk of control system. So as we're managing this round of business cycle and what improvements have been made to derisk the management system?

[Interpreted] After the rollout of the new regulation, we anticipated that it will affect the industry liquidity supply. This is based on experience that we accumulated across multiple cycles. This would, in turn, weigh on the industry's credit rate. Therefore, starting from the second quarter, we made an adjustment in our risk management reidentification strategy and also made business adjustments. We proactively identify customers who were vulnerable to tighten industry liquidity based on factors and high multi borrowing, high debt exposure, loan income, unstable employment and high exposure to high pricing traffic.

Based on this reidentification, we utilize automated rescanning robot, clearance robots and credit line robot to improve efficiency and effectiveness of account clearing and credit line reduction. This allowed us to respond early in the risk cycle and control the risk fluctuations to both new loans and existing loan portfolio. At the same time, by enhancing pricing competitiveness, optimizing long tenor and repayment experiences, we've strengthened engagement with prime customers, promoted the growth of quality assets, adjusted asset structure and improve resilience against recycles.

So in summary, we not only control the formation of delinquent assets, but also try to increase the volume and mix of high-quality assets. Thanks to the proactive measures that we have taken, the overall refluctuation for both new and existing loans remain under control in the third quarter.

For the overall loan book, day 1 delinquency ratio increased by around 5 basis points compared to the second quarter. For new loans, the magnitude of FPD30 [ 30 interest ] is expected to be [indiscernible] 5%.

Q4 is the first [ full ] quarter after the implementation of the new regulation so it's expected to be more challenging, not only in risk performance, but also in loan volume and also profit. For the existing loan portfolio based on the latest performance, day 1 delinquency ratio peaked in October due to the combined impact of the new regulation implementation and the long National Day holiday and then exhibited month-on-month improvement in November, showing signs of stabilization.

For new loans, as we further tightened credit criteria in October, we expect FPD30 of loans in October to improve compared to the peak in September. So overall, moving into the month of October, the risk performance of existing loans and new loans, both show signs of stabilization.

We will now take the next question. This is from [ Dong Peng Chu ] from CICC.

[Interpreted] And let me just take my questions, and I have 2 questions. First, what is the outlook and guidance for the fourth quarter and full year 2026 performance?

And second question is, as the company has utilized over half of share repurchase quarter, what are the plans for future shareholders' return?

Okay. I guess I will take the first question and ask Jay to take the second. The first one, the fourth quarter is really the first full quarter following the implementation of the new regulation, and our results will be negatively impacted to the similar extent as other leading players in the industry.

On the one hand, we ceased facilitated loans with APR above 24% starting October 1. On the other hand, in response to the rising industry-wide risk volatility, we have been proactively controlling the pace of low volume growth. As a result, we expect moderate loan volume decline in the fourth quarter. At the same time, we expect industry-wide risk fluctuation to gradually stabilize towards the end of the quarter. Therefore, along with the industry, our risk indicators will also fluctuate in the fourth quarter, which will push up the credit cost. Affected by these factors, the Q4 net profit will see a sequential decline.

To put things in perspective, it is worth mentioning that in the first 9 months of this year, we have achieved a net profit of RMB 1.5 billion, representing a year-over-year growth of 98%, in line with our previous guidance. Although the fourth quarter net profit will see some decline related to the regulation, the company's full year 2025 net profit is still expected to achieve significant year-over-year growth.

Looking ahead to 2026. Due to the industry and regulatory uncertainties, it is really hard to pin down a clear guidance at this stage. We are the same pressure as other leading players. For the same reason, the performance in Q4 cannot be simply taken as a base for predicting 2026 profitability. However, I'd like to discuss several key factors that may impact the net profit of 2026, for your reference.

One, the overall pricing impact. After the implementation of the new regulations, the interest rate on new loans are all below 24%. As this portion of the new loans accumulate over time, the average pricing on the outstanding loan book will gradually drop below 24%. So the decline in pricing will put some pressure on the net profit.

Two, risk stabilization. When the credit risk in this cycle bottoms out -- when this bottoms out, we're really determining when the volume growth and the profitability pick up. So customers with interest rate within 24% exhibit more stable credit risk profile Therefore, their credit costs will be lower, which will help offset the declines in pricing to some extent.

Three, funding costs trending down. The temporary tightness in the funding supply in Q3, Q4 were gradually eased as the regulations settle in. Therefore, funding costs are expected to follow a downward trend. And at the same time, with a better quality customers who carry lower risks, funding costs will also be lower.

Four, the synergies from ecosystem business, i.e., e-commerce. During this period, our e-commerce business has achieved steady growth, enhancing the company's profitability. Our off-line inclusive finance and the tech empowerment businesses have maintained stable risk performance despite challenging market conditions, enhancing the company's operational resilience. So the continued growth of the company's ecosystem business will further strengthen our operational resilience and boost the overall profitability.

So in conclusion, Q4 will be a temporary dip in our business and financial numbers due to the regulation. When the recovery will resume depends on the industry risk stabilization and further regulatory certainty. However, given the unique ecosystem business and the past 3 years turnaround effort, we are confident that we are better positioned than many other players. And we will be the first ones to recover when things are more settled, maybe in the early part of next year or so. That's first question.

Jay?

[Interpreted] We have been actively executing repurchase program in [indiscernible]. Both the companies' share repurchase program and our personal share repurchase plan have been more than [ halfway ] [indiscernible], which is well ahead of the original 1-year schedule. This fully demonstrates the management's strong confidence in the company's outlook, and reaffirms our commitment and capability to incoming shareholders [indiscernible]. Company's repurchase program is fully executed, alongside a dividend payout ratio of [ 30% ]. Our total shareholder returns rise above the industry average. The company has always attached high importance on shareholder return. Once the current share repurchase program is fully executed, we will explore more initiatives to further enhance value for shareholders.

[indiscernible] back to management for closing comments.

Thank you. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Thank you for standing by, and welcome to the LexinFintech Holdings Limited Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to Mr. Will Tan. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our second quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website.

Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on overall performance and the strategies of our business. Our COO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Last, please note that all figures are presented in renminbi terms, and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated.

Please kindly note, Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices.

With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Lexin. Please.

[Interpreted] Thanks for joining us today for our second quarter 2025 earnings call. We're delighted to report another quarter of high-quality growth. The company has successfully executed the transformation towards a business model driven by data analytics, risk management and refined operations. Despite macroeconomic uncertainties, our prudent strategy has led to continued profitability recovery and sustainable growth.

In the second quarter, total GMV reached RMB 52.9 billion, a quarter-over-quarter growth of 2.4%. Revenue increased by 16% to RMB 3.6 billion. Net profit reached RMB 511 million, representing quarter-over-quarter growth of 19% and year-over-year growth of 126% a record high in the past 14 quarters.

The excellent quarterly results are driven by the sustained improvement of asset quality and resilient growth across our business ecosystem. The management has always placed great emphasis on shareholder returns and remains committed to improving shareholder returns through various means.

Starting from the second half of this year, our cash dividend payout ratio is raised from 25% to 30%. Also, in July, the company announced a $60 million share repurchase plan to be executed within the next 12 months. These measures will further raise the company's shareholder returns above the industry average level.

Now let me introduce the specific business progress we have made in the second quarter. First, our unique business ecosystem has sustained strong growth, which has enhanced our competitiveness and strengthened our operational resilience. Our installment e-commerce business focuses on the essential consumption needs of young customers.

In the second quarter, we comprehensively upgraded our supply chain and partnered with dozens of top-tier brands to expand our product matrix. Also, we fully tapped into the users' diverse consumption demands through 2 merchandising categories, high-quality offerings and factory outlet products. In addition, based on our user insights, we developed and optimized our hyper-personalization approach to customize operation and risk strategies for different segments of customers.

During the June 18 shopping festival, our e-commerce GMV increased by 139% year-over-year, putting this business firmly on a rapid expansion path. For off-line inclusive finance business, we strengthened localized operations and expanded our business into lower-tier cities. By adopting customized risk management and differentiated competition strategies, enhancing our service capabilities and improving our efficiency to serve small and micro business owners, the profitability of inclusive finance business achieved steady sequential growth.

For online consumer finance business, we accelerated its development by partnering with multiple leading platforms to secure a favorable market position, laying a solid foundation for future growth.

For our tech empowerment business, we leveraged our standardized systems and risk management expertise to help partner banks efficiently connect with major platforms, enhancing their data-driven risk management capabilities and have gained wide recognition from our partner banks. During the quarter, the business saw a significant increase in business volume and number of users, maintaining robust growth momentum.

For overseas business, we continue to strengthen mid- and back-end capabilities, making notable progress during the quarter. It delivered substantial quarter-over-quarter growth in both business volume and revenue for multiple consecutive quarters.

Second, we strive for product service excellence to drive the growth of quality user in our online credit business. In the second quarter, we expanded our product portfolio, offering users competitive terms and flexible repayment options to meet their product and service needs throughout the full life cycle, significantly increasing user engagement.

For prime customers, we launched a product with more competitive pricing, upgraded Legend card, catering to their demands for on-demand borrowing and repayment with daily interest calculation. The product has been well received since its launch. For qualified small and micro business owners, we partnered with banks to introduce products with flexible terms further reducing financing costs and precisely meeting the needs of the segment.

Third, AI further enhanced our business quality and efficiency. Our locally deployed large AI models have been deeply applied in multiple business scenarios. For example, in post-loan management, the intelligent data-driven platform has achieved full process end-to-end AI support, ranging from case allocation and collection operations to customer operation and repayment strategies, effectively improving the post-loan collection rate.

The company's self-developed AI agents have also made significant progress with 50 AI agent roles currently deployed in key business areas such as operational strategy generation, credit strategy review and automated monitoring, greatly enhancing our operational. The company adheres to a user-centric philosophy and strives to enhance consumer satisfaction and trust by optimizing user service and experience and responding to user needs efficiently.

We remain focused on the top-level design and long-term mechanisms for consumer rights protection governance, integrating consumer rights protection into all business processes. Also, we have built a proactive consumer rights protection system to advance the high-quality development of consumer rights protection.

During the quarter, we increased technology investment in consumer protection and have refined over 50 digital and model-based tools to improve service response and user satisfaction.

Looking ahead, we will maintain stable business scale, further reduce risks and sustain profit growth in the third quarter. Although the new regulation of loan facilitation, which is to take effect in the fourth quarter may bring some changes to the industry, we believe it will foster the healthy development of the industry, particularly benefiting platforms like [indiscernible] that place high importance on compliance.

We will strengthen our business ecosystem synergy to build a unique competitive advantage and ensure continued business growth. As such, we maintain our full year guidance of achieving significant year-over-year profit growth.

Now I would like to give the floor to our CRO, Arvin.

[Interpreted] Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the second quarter.

In the second quarter, while the macroeconomic and industry environment remained complex and uncertain, we took swift action to address the potential impacts and maintain the downward trend in risks. Specifically, we focused on identifying customers vulnerable to industry fluctuations and taking measures to mitigate potential risks. Also, we adopted interactive reoffers to drive the increase of high-quality asset volume.

In addition, we leveraged large models to upgrade our risk management capabilities, improving the efficiency of risk decision-making and the accuracy of pricing and credit line strategies. Thanks to the initiatives we've taken, risks of both new and overall assets continue to decrease.

Leading risk indicator for new loans, first payment default, FPD, over 7 days of the second quarter declined by about 5% compared to the previous quarter. On total loan portfolio, day 1 delinquency ratio decreased by about 2%- and 90-days delinquency ratio decreased by 6% quarter-over-quarter.

I will introduce in detail the key initiatives we've taken for the second quarter. First, in terms of risk identification, we continue to optimize data models in the second quarter, focusing on identifying customers who are vulnerable to industry fluctuations and mitigating potential risks.

Based on the accumulated data on time series changes of credit risk across multiple credit cycles, we employed causal inference techniques and scenario simulations to develop a risk identification model that assesses customers' risk sensitivity to environment changes.

The model has proven to be highly effective. Among customers of the same risk rating, those who are identified as highly sensitive exhibit 1.5x risk level of low sensitivity customers in the current environment.

In addition, we focused on using data that shows greater stability features such as customer profiles, job stability and personal asset status to enhance our predictive capability for long horizon risks, thereby providing more reliable credit services to high-quality customers.

Second, we continue to strengthen risk management through preventive and proactive approaches. For customers identified by our model who are vulnerable to external environment changes and show higher risks, we've promptly taken measures such as reduction or suspension of their credit lines in order to mitigate the potential impacts of industry risks.

Meanwhile, we continue to enhance the competitiveness of offers for quality customers. In the second quarter, we launched a mechanism for customers to supplement credit enhancement documents, conducted personalized real-time reoffering, which combines machine review and manual review and launched upgraded Legend card, a new financial product featuring higher credit amount and lower fee rate.

These measures helped drive the asset volume of prime customers and number of active customers to increase quarter-over-quarter. In the third quarter, we will continue to strengthen the risk management strategy that combines preventive and proactive approaches to sustain the risk reduction trend while expanding high-quality assets and customers.

Third, in terms of e-commerce, we further upgraded the risk management system for e-commerce, which is an independent system from online consumer finance business. Specifically, we established millisecond level real-time risk decision-making capabilities across key processes, including search recommendations, offer matching, credit approvals and reoffer, et cetera. This ensures we meet customers' diverse consumption needs while maintaining risks well under control.

Based on the independent risk management system, the risk identification capability of e-commerce platform improved by over 30% compared to the previous quarter. Approval rates for credit application and order placement of platform users, especially quality users, have significantly increased, which has promoted the rapid growth of e-commerce business. Last but not least, we continue to strengthen the development and application of intelligent risk management tools.

Leveraging the latest AI large models, we have developed and implemented the credit line robot and pricing robot, which has delivered favorable results. The credit line robot has improved the efficiency and effectiveness of credit line decisions, while the pricing robot significantly improves the volume growth from pricing reduction by establishing price curves based on experimental data and dynamically optimizes pricing strategies.

In the future, we will continue to explore the application of large models in risk management, advancing our capabilities from quantitative risk management to intelligent risk management and building a leading edge in risk management capabilities.

In the third quarter, while external uncertainties and industry fluctuations remain, we will continue to strengthen our capabilities in automated high-risk asset screening and resolution, further refine credit approval and lending management and enhance customer onboarding and transaction management while swiftly addressing high-risk assets.

In the meantime, we will further optimize credit approval and credit line granting strategies to better meet the needs of quality customers, improve user experience and foster continued quality assets growth. These efforts are aimed at ensuring that key risk indicators remain on a downward trajectory.

Next, I will hand over to our CFO, James, to provide a review of the company's financial performance for the second quarter.

Thanks, Arvin. I will now provide a detailed overview of our second quarter financial results. Please note that all figures are presented in renminbi terms and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated.

We are pleased to announce another quarter of solid financial performance, marked by robust revenue growth, sustained profitability and expanding margins. We are on track on our profitability recovery trajectory.

Revenue recorded RMB 3.6 billion in the second quarter, representing a 16% increase quarter-over-quarter. Net income grew strongly by 19% quarter-over-quarter and 126% year-over-year to reach RMB 511 million. Our net income margin increased to 14.3% from 13.9% last quarter.

Net income take rate, calculated as annualized net income divided by the average loan balance increased 34 basis points to reach 1.92%. The net income, net income margin and net income take rate kept reaching record highs for the past 14 quarters, laying a [indiscernible] profit expansion. This set of financial results underscore our ability to turn around and drive sustainable growth in the dynamic market conditions.

To gain a clearer understanding of our business growth dynamics, let's take a holistic view of our financial results. First, if we add up credit facilitation service income and tech empowerment service income, net of credit cost, including the provisions and the fair value changes and the funding costs, we come up with a net revenue of the credit business.

The net revenue provides a more accurate reflection of our credit business performance as it absorbs the impact of a different accounting treatment for capital-light and capital-heavy business as well as the shifting mix across quarters.

In the second quarter, the net revenue of our credit business increased by 10% or RMB 183 million to RMB 2 billion. The net revenue of our e-commerce business, defined as the e-commerce revenue net of cost of inventory sold increased by 71% or RMB 40 million to RMB 97 million. So, the total net revenue added up to RMB 2.1 billion.

Operating expenses, including sales and marketing, research and development, general and administrative expenses, processing and servicing costs, tax and others increased by 9.8% or RMB 142 million to RMB 1.6 billion. So, if we deduct total expense of RMB 1.6 billion from the total net revenue of RMB 2.1 billion, we get a net income of RMB 511 million, increased by 19% or RMB 81 million quarter-over-quarter.

Driving the second quarter's strong financial performance are the following 3 business highlights, namely the flexible volume shift between business models, continued improvement in asset quality alongside sufficient provisioning and a robust growth in our e-commerce business.

Now let me elaborate more on the 3 business highlights. First, flexible volume shift between business models highlights operational resilience, driving stable growth in volume, revenue and net profit. From a unit economics perspective, net income take rate achieved 1.92% this quarter. The 34-basis point improvement quarter-over-quarter is mainly driven by an 82-basis point increase of revenue take rate of credit business, which is calculated by dividing the net revenue by the average loan balance.

During the quarter, the net revenue take rate of credit business increased from 6.69% to 7.51%, the increase was mainly driven by the increase of APR of capital-heavy model, which increased to 23.2% in the second quarter from 22.6% last quarter and also the stabilization of early payoff impact happened during the last quarter, partially offset by the increase of funding costs.

The improvement of net revenue take rate reflects our business resilience in a dynamic and complex environment. In the second quarter, we have observed a reduction in the supply of funds for capital-light business due to the fluctuation related to the new regulation, leading to higher funding costs for both capital-light and capital-heavy models.

To offset the impact, we proactively adjusted our business mix, switched more loan volumes from capital-light model to capital-heavy model. In the second quarter, the capital-light model accounted for 20% of GMV, decreased from 27% in the first quarter, mainly driven by the decrease of loans from ICP model, which only accounted for about 15% of GMV decreased from 24% in the first quarter.

The proportion of capital-heavy model increased to 80% from 73% in the first quarter. As you know, the borrowers from capital-light model typically have lower -- typically have relatively higher risk profiles to reflect this risk premium, the average APR of new loans under capital-heavy model increased.

At the same time, the provision increased due to the increase of loans under capital-heavy model. The smooth switch was supported by our enhanced risk management capability, which equipped us to accurately assess borrower risk, enabling risk pricing and product offering to optimize profitability and volume growth.

Second, asset quality sustained the improvement trend, and the provision remained prudent and sufficient. Our asset quality has continued to improve for 4 consecutive quarters. In the second quarter, 90-day delinquency ratio declined by 16 basis points to 3.1%. FPD 7 of new assets further came down by about 5%. Day 1 delinquency rate of total assets also decreased by about 2% quarter-over-quarter.

Also, our provision remained prudent and sufficient. As mentioned above, in the second quarter, our total credit cost, including 3 provisions line items and the fair value changes of financial guarantee derivatives increased by 13.6% quarter-over-quarter despite improved asset quality and a decreased loan balance.

It is important to note that due to the net accounting policy we have adopted for change in fair value of financial guarantee derivatives and loans at fair value account, the amount was partially offset by guarantee income and recorded as a net value in our P&L. As such, it only represents part of the actual full provision.

As another indicator of the sufficiency of our provisioning, our provision coverage ratio remained ample at 270%, up by 2 percentage points quarter-over-quarter and reached the highest level in the last 4 quarters.

Third, e-commerce business gained further traction. Our e-commerce business is deeply integrated into our ecosystem, creating strong synergies and therefore, becomes a unique competitive advantage. E-commerce [VINs] not only generates gross profit by selling merchandise but also creates interest income by providing installment services to customers.

Around 97% of e-commerce customers choose to finance their consumption with our installment service. In the second quarter, e-commerce GMV witnessed a substantial quarter-over-quarter growth of 80% and year-over-year growth of 117%. E-commerce [VIN] gross profit recorded RMB 97 million in the second quarter, up 71% quarter-over-quarter. Going forward, we continue to expect a strong sequential GMV growth for the e-commerce business.

Next, I'll go through some specific financial statement items. For our income statement, on the revenue side, total revenue reached RMB 3.6 billion, representing a growth of 16% quarter-over-quarter. Credit facilitation service income amounted to RMB 2.3 billion, up 4% quarter-over-quarter, driven by the increase of loan volume and the capital-heavy model, higher APRs and partially offset by the higher funding costs.

Tech empowerment service income increased by 33% or RMB 205 million to RMB 830 million, mainly thanks to the release of provisions of revenue and ICP model, reflecting better-than-expected asset quality performance and increased income from our referral services. E-commerce platform service income increased by 69% to RMB 487 million, driven by increased GMV.

On the cost and expense side, total operating expenses, which include processing and servicing costs, sales and marketing, research and development expenses, general and administrative expenses increased by 10% to RMB 1.4 billion, mainly driven by the increase of sales and marketing expenses and processing and servicing costs.

For balance sheet items, as of June 30, our cash position, which includes cash, cash equivalents and restricted cash was approximately RMB 4 billion. Shareholders' equity remained solid at about 11.6 billion.

Looking ahead, despite ongoing market uncertainties and evolving operating environment, the management maintains its full year guidance of achieving a significant year-over-year growth in net income. Furthermore, we remain committed to enhancing shareholders' value as demonstrated by our recent $50 million share repurchase program and $10 million CEO share purchase announced in July.

The Board has approved a cash dividend of USD 0.194 per ADS for the first half of 2025. The share repurchase program, together with our dividend policy, boosted our total shareholder return to above industry average level. Going forward, we will continue to evaluate opportunities to ensure we deliver optimal value to our shareholders.

This concludes our prepared remarks for today. Operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from [Emma Xu] with BofA Securities.

[Interpreted] So, congratulations on the good result amid a challenging environment. So, I have 2 questions. The first one is about the new regulations. So as the new regulation loan facilitation has been rolled out for a few months, what impact has the company observed? And what measures will you take to address the impact?

The second question is about the ecosystem. So, the ecosystem has developed rapidly in the second quarter. So, could you share more on the development strategy and outlook of your ecosystem business?

[Interpreted] Thanks for the question. Yes, the new regulation on loan visitation has been rolled out for some time, but not yet. We think the industry has been impacted by this. So, in the short term, we did observe funding supply tightened, which led to an increase in the funding cost of the second quarter. And also, some risk metric experienced minor fluctuations. For example, collection rates did decrease a little bit.

To address the impact, actually, we have taken proactive actions as early as in April. More specifically, we tightened our risk management strategies to mitigate the potential impact of sector-wide fluctuation. So, as I mentioned, collection rate decreased a little bit, but our day 1 delinquency also decreased the impact offset each other. Furthermore, leveraging our unique [indiscernible] advantages, we have the flexibility to adapt our business model to navigate the challenges.

In the long run, the implement of the new regulation will bring some changes to the industry, but it will focus more standardized, sustainable and healthier industry environment, which benefits compliance platforms like Lexin. In the past, we also experienced different several rounds of regulation and I think we have the experience and flexibility to adjust our business model to navigate the challenges.

For Lexin, we support regulators' efforts to supervise and factor and will continue to adhere to our customer-centric philosophy, enhance our ecosystem synergies and ensure continued business growth. As such, we maintain our full year guidance of achieving significant year-over-year profit growth.

And regarding your second question about our development of the business ecosystem, actually, our business ecosystem achieved various progresses. For our installment e-commerce business, I would like to stress that is the first installment e-commerce platform in China and have been developing this business for over a decade. It has been a crucial part of our ecosystem.

And as part of our transformation towards a business model driven by data analytics and risk management in the last year, we have built an independent risk management system for the e-commerce business. So, you can see in the past several quarters, our e-commerce loan origination volume has sustained a significant growth, particularly in the June 18 shopping festival, our GMV increased by over 100%.

And for our offline business, we will continue to expand our business into lower tier cities. And just to emphasize that this channel, we target at serving the small and micro business owners. And the differentiated advantages of this is that we have our own proprietary self-developed direct sales team. And in the second quarter, we cooperated with several new partners, helping them to connect with large platforms and banks and improve their digital risk management capability.

For our tech empowerment business, leveraging our standardized system and risk management expertise will continue to help them to connect to the large platforms and to enhance their customer acquisition capability.

For our overseas business, we have delivered quarter-over-quarter sequential growth in both business volume and revenue for multiple consecutive quarters. And as said, we'll continue to enhance team development in order to sustain healthy and sustainable growth.

Your next question comes from Alex Ye with UBS.

[Interpreted] My first question is on [indiscernible] so, in light of the current uncertain external environment driven by the regulatory change, how does Lexin's risk management system can help you better respond to potential risk fluctuations?

And second question is on regarding your take rate -- ongoing take rate improvement. Could you also give us more color on the drivers on the underlying net rate improvement?

[Interpreted] In response to uncertainty of the industry rate performance arising from the new loan facilitation regulation, we actually take proactive measures as early as in April. So, we tightened the risk approval standards as early as in April for new customers in order to maintain a downward trend for new risk. And for vintage of existing loans, we improved the early reminders for the loan repayment in order to reduce the day 1 delinquency.

Also, we implemented targeted measures for customers vulnerable to industry rate fluctuation -- for customers identified as high rate sensitive by our models, we've taken measures such as reduction and suspension of their credit line to mitigate the potential impact of sector-wide rates. This has helped maintain a steadily improving rate performance.

Second, we continue to drive high-quality asset growth, which will lay a solid foundation for our future high-quality development. We leverage advanced AI models to enhance our risk management system. We also refined customized pricing strategies, which has increased the competitiveness for prime customers while improving the overall user experience, further supporting our high-quality asset growth.

So overall, we not only reduce the high-quality -- we not only reduce the formation of high-quality assets but also try to drive the growth of high-quality assets.

We also strengthened provisioning to our risk buffer, enhancing our capability to cope with future uncertainties. In the second quarter, we increased provisioning by 13.6% to RMB 1.04 billion. The reinforced provision along with improved risk performance drove our provision coverage ratio to rise to 270%.

To summarize, we will continue to prioritize high-quality asset growth while also enhancing provisioning and maintaining a steadily improving risk performance. In the meantime, we -- while we continue to strengthen risk identification and management, we will also ramp up the application of intelligent risk management tools to increase efficiency.

Okay. I will take the net profit take rate question. Almost a year ago, we told the market that thanks to the company's turnaround initiatives, we will be able to gradually improve the business profitability, and this will be reflected in our net profit take rate.

And I'm happy to tell you that in the last 4 quarters, we have successfully delivered the promise of improving 20 to 30 basis points each quarter to reach 1.92% in Q2. We're now on track for the goal by the end of the year.

As for Q2, really the credit goes to the strong revenue growth from both the credit and e-commerce business, as I mentioned in my prepared script. Specifically, the net revenue of our credit business increased by 10% quarter-over-quarter or about RMB 183 million to RMB 2 million.

As a reminder, as I mentioned earlier, if we add up the credit facilitation service income, the tech empowerment service income, net of credit costs, including the provisions and fair value changes and the funding cost, we come up with the net revenue for the credit business.

So, if you further break down to the next level, the net revenue of the capital-heavy model remains stable, driven by the increase of loan volume under the capital-heavy model, higher APRs and partially offset by higher credit costs and funding costs. By the way, as Arvin mentioned earlier, the increase of credit cost is mainly driven by our prudent provisioning policy.

The net revenue of capital-light model, on the other hand, increased by 33% quarter-over-quarter or about RMB 205 million to RMB 830 million, mainly thanks to the income from our referral services and from the release of provisions of revenue under the ICP model. This really reflects the better-than-expected asset quality performance within the ICP.

So, in addition to the credit business, the net revenue of our e-commerce business, defined as the e-commerce revenue net of the cost of inventory increased by 71% or RMB 40 million to RMB 97 million, also contributing to the increase of our profitability.

So, with the strong increase of revenue, offsetting by some increases from the operation costs and expenses, we get the net profit take rate of 1.92%, a 34-basis point higher than the previous quarter. This fully demonstrates the uniqueness and the strong growth potential of our diversified business ecosystem.

Looking forward, for Q3, we continue to expect relatively stable volume, improved risks, strong quarter-over-quarter net income growth. Therefore, we continue to expect the net income take rate will improve in a similar pace as before.

Your next question comes from Alan Chen with Citibank.

[Interpreted] This is Alan from Citibank. I just have a quick question on shareholder return. I noticed that in July, you have announced a $50 million share repurchase program. Just wondering, management, if you could give us a little bit more color on the thought process and rationale behind the buyback program.

And on top of that, if management has any plan to further boost shareholder return in the future?

[Interpreted] On July 21, we announced a $50 million share repurchase program to be executed over the next 12 months. In addition to that, I plan to purchase up to USD 10 million worth of shares using my personal funds.

If the company's repurchase program is fully executed alongside the key increases in the cash dividend payout ratio, our total shareholder return will rise above the industry average. With a forward PE ratio below 4x, the company has compelling investment value. This repurchase program underscores the management's confidence in the company's outlook and reinforces our commitment to delivering value to our shareholders.

In terms of repurchase execution, we will implement the program after the second quarter results release and will strictly follow repurchase rules while taking into account market conditions. We will make regular updates on repurchase progress in our quarterly earnings release. As I said, the company values shareholder return and we will continue to explore various means to deliver value to our shareholders.

Thank you. That does conclude our question-and-answer session. I'll now hand back for any closing remarks.

Thank you. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]