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Operator: Thank you for standing by and welcome to the Yiren Digital Third Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Ms. Lydia Yu, Investor Relations. Please go ahead.

Lydia Yu: Thank you, operator. Hello, everyone, and welcome to our third quarter 2023 earnings conference call. Today’s call features prepared remarks by the Founder, Chairman, and CEO of CreditEase and our CEO, Ning Tang and our CFO, Ms. Na Mei. Our SVP, Ms. Mei Zhao, will join the presenters in the Q&A session. Before beginning we would like to remind you that discussions during this call contain forward-looking statements made under the Safe Harbor Provision of U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company results may be materially different from the views expressed today. Further information regarding future risks uncertainties or factors is included in our filings with the U.S. SEC.

A finance executive tapping away on a digital tablet, demonstrating the company’s digital innovation.

We do not undertake any obligations to update any forward-looking statements as required under the relevant laws. During this call, we will be referring to certain non-GAAP financial measures, and supplemental measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a replacement for the financial information prepared and presented in accordance with U.S. GAAP. For information about those non-GAAP measures and reconciliations to GAAP measures, please refer to our earnings press release. I will now pass it on to Ning, our CEO, for opening remarks.

Ning Tang: Thank you, Lydia. Hi, everyone. Thank you all for joining our earnings conference call today. As China transitions into the post-COVID era, recent macroeconomic data shows economic recovery gaining traction, with China reaching 4.9% year-over-year GDP growth in the third quarter, beating market expectations, but still a decline on a year-over-year basis from the previous quarter. In the face of overarching challenges on the macroeconomic front, we have consistently directed our investments toward research and development, aiming to elevate customer experience and optimize operational efficiency. As a result, over the past few quarters, we have enhanced the quality of our earnings. Consistent improvement in our bottom line quarter-over-quarter.

Strategic approach positions us to capitalize on growth opportunities once the economy rebounds. We reviewed our new corporate positioning as an AI and technology driven financial and lifestyle services platform that is anchored by three key pillars: financial services; insurance; and consumption and lifestyle services. This quarter, we have started utilizing AI-assisted marketing tools to increase our advertising targeting accuracy and achieve greater social media visibility. We are also in progress of upgrading our chatbots to assist in early stages of the loan collection process. Let’s get into this quarter’s business update. First, on financial services. In the third quarter of 2023, total loan volume was RMB9.8 billion, representing a 56% increase year-over-year.

The total number of borrowers in the quarter increased 63% from prior year. 1.2 million view on our Yi Xiang Hua APP continue to increase for the sixth consecutive quarter by 23% from prior quarter to 2.9 million. And the number of average transactions per user maintained stable at 3 times, indicating high user stickiness and activeness. In terms of user distribution for Yi Xiang Hua, approximately 30% are first-time borrowers, while the remaining 70% are repeat borrowers. Borrower acquisition continue to explore new acquisition channels, as well as optimize our acquisition methods to attract high-quality new customers. During this quarter, we experimented with utilizing our WeChat [Technical Difficulty] Additionally, we initiated collaboration with selected media partners to fine tune our acquisition model and enhance the accuracy of user targeting.

Combined with utilizing AI-assisted marketing tools, these new initiatives resulted in loans facilitated to new borrowers, increasing by 49% this quarter from prior quarter. Our international expansion efforts have experienced significant growth in the Philippines market. Our third quarter results showing a remarkable increase of 172% compared to the previous quarter. We have also achieved notable improvement in risk management as we continue to join and fine-tune our risk models tailored for the local market. [indiscernible] continue to pursue growth in international markets and are excited for this [indiscernible] as a substantial driver for future growth. Our funding front continues to diversify our funding sources, we noted approximately 5% decrease in institutional funding costs this quarter as compared to last quarter.

Asset quality, it remains stable with 15 days to 89 days delinquency rates at 3% and [M1] (ph) collections rates improved by 0.5 percentage points this quarter. Consumption and lifestyle services seen continue rapid growth over the past few quarters, with total GMV generated this quarter, increasing 42% from the prior quarter to RMB563 million. The total number of active users this quarter also increased 22% from prior quarter to 2.96 million. The growth in our consumption and lifestyle services segment has also created synergies with our financial services segment, with active users further stimulating an increase in loan demand, resulting in a mutually reinforced loop in our ecosystem. Lastly, on our insurance brokerage business, gross premiums reached RMB1.4 billion for third quarter of 2023, up 43% year-over-year, and 7% quarter-over-quarter, which is significantly ahead of industry average.

Second quarter was the peak for first-year premiums due to the timing of the new pricing regulation capping future product returns at 3%. Breaking down, this quarter 62% of total premiums were attributed to life insurance premiums, while property insurance premiums accounted for the remaining 38%. [Technical Difficulty]

Na Mei: [Technical Difficulty] business volume expands. Research and development expenses increased 17% year-over-year to RMB39 million [indiscernible] and AI and tech innovation across our company. Origination and service costs increase 10% year-over-year to RMB245 million, mainly driven by an increase [indiscernible] service costs relating to our insurance brokerage segment. G&A decreased 30% year-over-year to RMB54 billion as we continue to realize operating efficiency. Allowance for contract assets and receivable was RMB84 million for this quarter, remaining stable and above 0.9% of loan facility. On to our bottom line, we continue to deliver a strong profit of RMB554 million this quarter, increased 105% from prior year.

We generated about RMB645 million net cash from operations in this quarter, an increase of 88% from prior year. On the balance sheet side, our balance sheet remains strong with the total cash and cash equivalent of RMB5.4 billion by the end of this quarter. This quarter, we deployed $2 million to pay back our shares in the marketing — public marketing. As of the third quarter end, the company has accumulated [$5.5] (ph) for our share repurchase program. We maintain confidence in the fundamental aspect of our company’s business and growth prospect. Based on assessment of our business and marketing conditions, we expect our 2023 full-year revenue to stand between RMB4.3 billion to RMB4.9 billion with net profit margin expected to remain stable.

This [indiscernible] our current and preliminary review [indiscernible] change and uncertainty. With that, we conclude our closing remarks. Operator, now we can open for questions. Thank you.

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Operator: Thank you. [Operator Instructions] The first question comes from the line of Matthew Larson with [Cincinnati] (ph). Please go ahead.

Unidentified Analyst: Good evening. Thanks for taking the call. Okay. I missed most of the conference call, but I read the report. Another great quarter, I mean, it’s really unprecedented, the sort of financial returns you show on a quarterly basis. Your stock has gone up pretty sharply the last two days in advance of this call. But what are your plans to try and get a higher level of stock price? Because based on your run rate, you’re trading at less than 1 times earnings, which is, in my 41-year career, pretty much unprecedented. In addition, you have probably at least 3 times the cash on the balance sheet that the value of your company is. And that’s also unprecedented. Your company also used to be worth $50 a share like a few years ago.

So down at the $2 or $3 range is unusual. But you’re a Chinese stock from the PRC and people are just trustful. With that being said, what plans do you have to broaden out investor awareness of your company? Because this stock should be $10 minimum, not $2. Can you help me with that?

Ning Tang: Well, thank you. I’ll provide my perspective, and then Na and other colleagues can do more. And so, first of all, thank you for your kind remarks, recognition. And I think one is that, as Na mentioned, we keep buying back our shares. And now we see the volume has gone up and that enables us to buy more shares. So we will continue to do that as much as we can. And so that’s one. I hope there is a reinforcing positive loop. A stock price goes up, more room for buyback, price going up further, more room for buyback, so on. So this is one. Secondly, quite interestingly, I’ve had some interactions with investors and other interested parties on the same issue. And so, there are some interesting suggestions which I found to be quite intriguing and probably they make good sense.

I love to get your thoughts as well, which is like, when our market cap was big, much bigger, we attracted lots of institutional interest. But now, today the interest is more at the retail level. So if we keep doing the institutional communication mainly or solely, that is not good enough. We miss a big chunk of our investor interest. So we are thinking quite proactively to do more like retail side communications. And there is good work to be done on that front, while continuing to do a good — better, I’d say, communication with institutional investors and other interested parties. However, with more visibility like we have, we are enjoying. Business is getting better and better, consistency is very clear and prospects are great. So there will be more and more institutional coming back.

While the retail side is something we will spend a lot of time on. So that’s another point I’d like to make. And fundamentally, we will continue to do great business. My firm belief is that, if we continue to deliver, things will really get back to us.

Unidentified Analyst: All right. That all sounds good. I know your share buyback is restricted by the volume. How many shares have you bought back this year? You were going to buy $20 million worth, but that’s pretty tough to do with the volume is showing. Can you tell me how much you’ve bought back so far?

Ning Tang: Na, you mentioned this number, so please go to more detail.

Na Mei: Yeah, as I mentioned in my script, by the third quarter end we have accumulated about $5.5 million to [indiscernible]. Actually, by the end of this month, the latest amount is amount to $7 million to perform our share buyback and we will continue to [indiscernible] at $20 million.

Unidentified Analyst: Got you. I’m sorry, as I said, I missed the first portion of the conference call. It took me a while to get on, but, all right, $7 million, which is fine. Have you thought about just tendering, like at $4 for like 25% of the shares? I mean — and this is part of a second question. Why don’t you just take it private? You have the money on the balance sheet. You make more money than the whole market capitalization of the company. I mean, you are trading at less than 1 times earnings, which is really very unusual. Why do you want to be a public company? Just take it private and pay a premium to people, $5 bucks, okay, and people will be happy to get out. And you could spend less than the cash on your balance sheet. So has that — or have you ever been approached by a third party who would like to participate in a buyout?

Ning Tang: Yes, we certainly see the math, but as I explained in previous call, it’s very clear that our strategy to go global, to become a global FinTech leader, and so maintaining this listed company position gives us a lot of upside to do like going global. And also we believe the market will recognize good performance, consistent good performance.

Unidentified Analyst: So are you saying that having a US listed stock has certain prestige attached to it. So you would rather be a publicly traded company because you think in the long run it’ll benefit for you?

Ning Tang: Yes, for example, like we can do like acquisition globally. We can reward our employees and the partners globally with stock and so on. So it’s very strategic. We have this vehicle, this platform.

Unidentified Analyst: All right, but it wouldn’t make sense to pay people in stock when your stock is still undervalued. You might as well pay cash because you have plenty of cash. So if you’re going to reward people with cash…

Ning Tang: I’m talking about the future.

Unidentified Analyst: Okay, very well. All right, listen, you’re not the only firm that’s — the only company that’s in your space. I like your company because you’ve broadened out your business model to include insurance and things like that. But other companies that are strictly lending platforms like QFIN or FINB, FinVolution, which we reported last night. Another company reports tomorrow, which is X Financial. I’m familiar with all these companies, because I worked at Morgan Stanley and we underwrote you guys. We were part of the initial public offering back in 2016 and 2015. So I’m very familiar with your companies. And I’ve just been frustrated that I haven’t gotten — I haven’t made as much money as I’d like to, because I’ve had to be patient.

But I’ll just leave it there. I mean, there’s nothing else to say. Your stock should be worth a lot more. As you’re buying as many shares as the volume will allow, that’s all I can ask. When is the window open for you to buy more shares? I mean, the volume spiked the last couple days. When can you buy more shares after this earnings call?

Ning Tang: Yeah, once the window opens up. We will [Technical Difficulty]

Unidentified Analyst: You’ll go all in. When does that window open up, sir?

Na Mei: Okay, I’ll answer your question. After the…

Ning Tang: [Multiple Speakers] exact date?

Na Mei: Yes, by today. After our complete conference call and the release of earning the third quarter of the finance statement, the window is open.

Unidentified Analyst: Okay, last question. Some of your competitors do pay a dividend. [QEHO] (ph), which is QFIN is the symbol, XYF, and FINV pay dividends, which not only returns some of your huge cash position to shareholders, but it makes shareholders more comfortable dealing with a company from a CRC that pays dividends, because if you pay dividends then the money you have is actually there, so have you considered that?

Ning Tang: We have thought about that, as a matter of fact we did it like a while ago for a while. And so there are different schools of thought. And so people say that, what you just said is one school and some people say that, which I tend to agree more is that, once you pay dividends, you become a category of dividend paying companies as opposed to high growth companies. And if you are a high growth company, which we are, so we have like high growth, high quality growth opportunities for our cash. And so, we should belong to that category. And so, I firmly believe we are, as we showed the high growth rate, high-quality growth, AI driven growth. So yes, I understand dividend helps in terms of returning money to investors. So we do buyback aggressively, and that’s another way of returning, alternative way of returning — generating value for investors. While speaking to being a high growth company, putting cash in better use. That’s our current thinking.

Unidentified Analyst: I mean, the buybacks are good except for the stock price really hasn’t moved. Let me just give you some advice. The four or five companies that came public five or six years ago that were peer-to-peer lenders like you used to be, but are in the same business space really that you all are that pay dividends. One is FinVolution. I’m sure you’re familiar with them. They traded 4.5 times earnings and they pay a dividend of 4%. And then if you look at QFIN, which is QIHU, all right — Qifu, I’m sorry. Morgan Stanley follows them from a research point of view and it’s got a $3 billion market cap, but they pay a dividend also and that trades at 5 times earnings. So, just paying a dividend could increase your stock market price to earnings multiple 3 or 4 or 5 times.

So your stock could go up literally 4 or 5 times if you just pay a small dividend. So you might want to think about that, because if you pay a dividend, certain investors will invest because they like the dividend, but it also gives them comfort that all this cash that you have on your balance sheet is actually there because you can’t pay dividends unless you have money. So if you pay it, it kind of proves to them that you’re very, very, very good financial position from a balance sheet point of view is valid. So, your stock could go up 2 times or 3 times just by paying a dividend. So that’s my advice.

Ning Tang: Thank you. Noted. We’ll study further.

Unidentified Analyst: Very well. Thank you for your time.

Operator: Thank you. [Operator Instructions] This concludes our conference for today. Thank you for your participation. You may now disconnect.

Ning Tang: Thank you all.