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Operator: Good day, and welcome to the First Quarter 2025 Year-end Digital Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Keyao He. Please go ahead.

Keyao He: Thank you, operator. Good morning and good evening, everyone. Today’s call features the presentation by the Founder, Chairman and CEO of Credit, our CEO; Mr. Mei Zhao; and our CFO, Mr. Yuning Feng. Our incoming CFO, Mr. William Hui will join us for the Q&A session after the prepared remarks. Before beginning, we will 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. Such statements are subject to risks, uncertainties and factors that can cause actual results to differ materially from those contained in any such statements. Further information regarding future risks, uncertainties or factors is included in our filings with the U.S. Securities and Exchange Commission.

We do not undertake any obligation to update any forward-looking statements as required under relevant laws. During the 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 substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP financial measures and reconciliations to GAAP measures, please refer to our earnings press release. I will now pass it to Ning for opening remarks.

Ning Tang: Thank you all for joining our earnings conference call today. We are pleased to report another solid and healthy quarter, reflecting the strength of our technology transformation strategy, which focuses on sustainable growth, operational efficiency, technology innovation and international expansion. Our core business benefits from domestic economic stimulus policies that boost consumption and expand credit access, creating sector-wide opportunities. Through our strategic focus on attracting and serving high-quality borrowers, combined with ongoing integration of advanced technology across our platform, we are well positioned to capitalize on these favorable conditions and confident in maintaining our growth momentum through 2025.

Before discussing our operations in detail, I would like to share our interpretation of the new rules on loan facilitation business issued by China’s National Financial Regulatory Administration in early April this year. Under the new rules, commercial banks are required to adopt a formal white list mechanism for fintech partnerships and comply with standardized financing cost structures under the new regulatory framework, we anticipate accelerated consolidation in China’s online lending industry due to stricter compliance requirements. While smaller platforms may face pressure in maintaining partnerships with funding sources, major platforms like ours are gaining dominance through compliance advantages and technological strength. Looking ahead, risk management capabilities, regulatory compliance and differentiated product pricing capabilities will become critical competitive differentiators, and those are precisely the areas where we are strategically building our operational edge.

Now let me go through our business highlights for this quarter. First, on our financial services business, in the first quarter of 2025, loan volume facilitated reached RMB 15.2 billion, representing a slight decline of less than 1% quarter-over-quarter, but a strong 28% increase year-over-year, demonstrating resilience amid seasonal headwinds. We project double-digit growth in loan volume for the second quarter this year, attributable to 3 key growth drivers. The first one is our growing repeat borrowing rate, which increased significantly to 74% in the first quarter of 2025 compared to 65% in the fourth quarter of 2024. Having successfully upgraded our customer base with higher-quality borrowers, we are now focusing on increasing repeat borrowing within this premium segment.

This strategic optimization allows us to grow our loan volume while improving customer acquisition cost efficiency, driving superior unit economics across our portfolio. Secondly, we have also broadened our traffic channel mix by adding 3 new partnerships this quarter, including collaborations with travel and lifestyle platforms. These partnerships are already contributing to our borrower acquisition and engagement. Thirdly, we continue to see exceptional results from our AI-driven initiatives, which are a cornerstone of our operations. In April, our proprietary large language model, Zhiyu received filing approval for commercial use, marking a key milestone in applying our AI technology to enhance marketing and engagement. During the first quarter of this year, Zhiyu generated over 550 advertising pieces in China and 20 video sets, 200 advertising text and 200 images in the Philippines, streamlining campaigns and boost impact.

Moreover, our AI marketing system continues to demonstrate strong performance. Currently, our AI customer service system handles over 30 million calls per month, boosting acquisition efficiency and cutting labor costs. Specifically for existing customer operations, in the first quarter of this year, our system served over 20 million existing borrowers with advancements in semantic recognition and intent detection, enabling more meaningful and efficient interactions. On average, customer interactions achieved [ CNY 7.1 ] per session in the first quarter, up from [ CNY 6.6 ] in the prior quarter, which further improved sales conversion. Furthermore, customer service efficiency has also seen concrete improvement. The 22nd core pickup rate has increased to 96% in the first quarter this year from 85% in the prior quarter, delivering a faster, more seamless customer experience and reinforcing our commitment to high-quality service standards.

Additionally, we have launched an AI-powered marketing prediction system, which enables personalized and precise customer targeting. Meanwhile, our proprietary AI-driven internal customer service training platform is well received among our employees. It provides a variety of training services such as role stimulations, AI-powered business freezing suggestions, real-time AI evaluation feedback and AI-generated training reports, which has enhanced agent communication quality and ensured compliance with operational standards. Now let’s turn to the funding aspect. In the first quarter of 2025, we added 4 new institutional funding partners, bringing our total number of funding sources to nearly 60. Meanwhile, our funding costs continued to decline by 9 basis points in March compared to December 2024, paving the way for our long-term high-quality growth.

Regarding our asset quality, risk indicators remained stable at historical lows in the first quarter of 2025. As of March 31, delinquency rates for loans past due for 1 to 30 days, 31 to 60 days and 61 to 90 days were 1.6%, 1.2% and 1.2%, showing negligible fluctuation from the previous quarter. This stability reflects our commitment to maintaining high asset quality through rigorous risk management practices. It’s worth mentioning that AI has played a pivotal role in enhancing our asset management efficiency. Take loan collection work, for instance. In the first quarter of 2025, 83% of day 1 delinquent cases, 29% of day 2 cases and 28% day 3 cases in the domestic market were handled by AI collection robots, saving approximately RMB 1.9 million monthly in labor cost.

In the Philippines, AI collection strategies have reduced complaints by 14% quarter-over-quarter, further improving our operational efficiency and service quality. Now let’s look at our overseas business, which continues to demonstrate strong momentum. In the first quarter of 2025, our loan volume in the Philippines reached RMB 123.7 million, representing a 74% growth compared to the fourth quarter of 2024, with new borrowers loan facilitation up 108% quarter-over-quarter, paving the way for our continued growth in the next phase as we will drive up our repeat borrowing later this year. Looking ahead, we anticipate a double-digit growth in loan volume in the Philippines for the second quarter this year. Meanwhile, preparations for our expansion into Indonesia are progressing well with operations expected to launch in the second half of 2025.

We are also leveraging AI to optimize marketing, enhance intent recognition and reduce costs, further supporting our international growth. With that said, AI remains central to our strategy. In addition to using AI in our operations, we are expanding our AI ecosystem through investments in AI technologies and exploring potential acquisition opportunities globally. These efforts support collaboration while speeding up innovation and time to market. Now going to our insurance business. Our insurance brokerage market continues to face headwinds due to regulatory tightening and market contraction, particularly in the life insurance segment. In the first quarter of 2025, our total premiums reached RMB 801.8 million, with revenue of RMB 71.5 million, reflecting a sharp decline of 12% and 43% year-over-year, in line with broader industry trends.

To navigate these challenges, we are adopting a dual-pronged strategy. For life insurance, we are leveraging new media customer acquisition and digital channels to drive momentum. For property insurance, we are capitalizing on emerging opportunities by expanding embedded insurance in sectors such as AI robots and the low-altitude economy. By focusing on providing tailored high- value products, we are aligning with new growth areas in the economy, driving innovation and strengthening our partnership. Based on current assessment, we anticipate a remarkable recovery in our insurance brokerage business next quarter. Moreover, we are also seeing growing synergies between our lending and insurance businesses with premiums from cross-selling up 67% quarter-over- quarter, demonstrating the effectiveness of our integrated business model.

Now for the Consumption and Lifestyle business segment. Following a strategic review, we determined that the segment has reached an optimal scale with high penetration. It will require a substantial investment to grow the business to the next level. As a result, we are realigning resources to focus more on financial services and AI-driven innovation, where we see greater opportunities for sustainable growth. As we look ahead to 2025, we see significant opportunities for both our core business and the new areas emerging as we transform into a more international and technology-driven organization. We will continue to emphasize AI-driven innovation and application as one of our core pillars of growth. By pursuing a path of global high-quality development, we are confident in our ability to achieve sustainable progress, and we will remain focused on creating long-term value for our customers, partners and shareholders.

Finally, we have a management change to announce. Mr. Yuning Feng, our current CFO, will step down from his position on July 30, 2025, due to personal reasons. We sincerely thank Yuning for his dedication and contributions to Yiren Digital and wish him all the best in his future endeavors. We are delighted to welcome Mr. William Hui as our new CFO. With nearly 2 decades of experience in investment banking and capital markets, William has a strong track record in global investment operations. Since joining our parent company, CreditEase, in 2017, he has played a key role in driving investment and capital market strategy. His extensive leadership background and expertise are invaluable as we continue to grow and strengthen our organization. With that, I will pass it to Yuning, who will go through the financial performance for this quarter.

Yuning Feng: Thank you, Ms. Tang, and thank you for all your kind wishes. So hello, everyone. On this call, I will be focused on our key financial highlights. Please refer to our earnings release and IR deck for further details, both available on our website. Firstly, we are pleased to report a steady growth in the first quarter of 2025. Our total revenue increased 13% year-over-year to RMB 1.6 billion. In the Financial Services segment, total loan facilitation reached RMB 15.2 billion in the first quarter, up 28% year-over-year. The growth was primarily driven by robust demand for our small revolving loan products, coupled with a steady increase in demand from repeat higher-quality borrowers. The platform’s ability to attract, retain and nurture high-quality borrowers has been a key driver of the sustained growth in loan volume.

As a result, revenue from this segment surged by 59% year-over-year to RMB 1.2 billion in the first quarter, further highlighting the platform’s success in meeting growing customer demand. In the first quarter, the revenue from guarantee service reached RMB 318 million compared to RMB 17 million in the same period last year, reflecting the growing loan volume facilitated under the risk-taking model. As loan balance under risk-taking model continue to grow, we expect higher revenue contribution from the guarantee services. In the insurance sector, our gross written premium totaled RMB 802 million in the first quarter of 2025, making a 12% year-over- year decline. The decline was mainly driven by industry-wide new sales contraction amid regulatory changes.

Consequently, revenue from our insurance segment declined 43% year-over-year to RMB 71 million. In the Consumption and Lifestyle segment, as we strategically scaled back product offering since the second half in 2024, the total revenue dropped 40% year-over-year to RMB 308 million. Following our strategic review, just as Ms. Tang mentioned, we have decided to focus more on our financial service and AI-driven innovation to optimize our ROI as we see greater business opportunity there. On the expense side, sales and marketing spend in the first quarter edged down 0.1% year-over-year to RMB 277 million, which remained stable. This reflects better cost efficiency from development of our AI technology. Research and development expenses increased 112% year-over-year to RMB 86 million as we increased our investment in AI productivity technologies, strategic recruitment of specialized talent.

Origination, servicing and other operating cost was RMB 225 million in the fourth quarter, down 4% year-on-year, which remained stable. G&A expenses for the first — for the quarter increased by 15% year-over-year to RMB 96 million. The increase reflects our enhanced incentive bonuses and increased employee benefit expenses. The allowance for contract assets and receivables for the quarter was RMB 153 million, up 49% year-over-year. This is mainly driven by the continued growth of loan volume facilitated on our platform as well as our cautious approach to risk management. Provision for contingent liability this quarter increased [ 511 ] year-over-year to RMB 411 million. This reflects the higher loan volume growth facilitated under our risk-taking model, which in accordance with our current accounting standard require substantial upfront provision, while the corresponding revenue will be recognized on a monthly basis throughout a loan’s lifestyle.

So on the bottom line, net income of this quarter was RMB 248 million, decreased 49% year-over-year. The decline in net income can be attributed to 4 key factors. First, substantial upfront provision were allocated due to growing in loan volume under our risk-taking business model, our product model. Second, research and development expense increased as we continue to enhance our in-house AI capabilities. Thirdly, there was a reduction in overall profitability within the insurance business as well as lifestyle and consumption business segment. Regarding our cash flow, we generated approximately RMB 479 million net cash from our operations in the first quarter. On our balance sheet, our cash and cash equivalents remained strong at RMB 4 billion, underscoring our financial flexibility and positioning us to capitalize on our strategic opportunities.

Lastly, on our business outlook. Based on our assessment of current business and marketing conditions, we expect our revenue for the second quarter of 2025 to stand between RMB 1.6 billion to RMB 1.7 billion, representing a 7% to 14% year-on-year increase with a healthy net profit margin. This represents our current and preliminary assessment, which may be subject to changes and uncertainties. So here we conclude our remarks.

Keyao He: We’re now ready for Q&A.

Operator: [Operator Instructions] Our first question comes from Chris Wu from Luke Capital.

Christopher Wu: Perhaps my question is what kind of impact or changes do you expect from the new loan facilitation rules?

Yuning Feng: Okay. Thank you for the question. The recent loan facilitation regulation in China, we believe, is a significant step towards formalizing and stabilizing the industry within the country’s financial framework. So these rules promote greater transparency and regulatory clarity, which align with the government’s support goals of supporting financially robust lenders and fostering healthy industry growth. So for Yiren Digital, benefited from — it is beneficial for a big platform like us as the industry will see — we likely to see an acceleration in industry consolidation. So as we are already on the white list of our funding partners. So we believe this is good news for us.

Keyao He: I hope that answers your question, Chris. Do you have any other questions?

Christopher Wu: Yes. Can you provide some details on the international expansion?

Keyao He: Tang, will you answer this question?

Ning Tang: And then previously reported international business is very strategic for us and will, yes, grow into a significant part of our revenue and value in the future, I hope, yes, not too far away. And we are making very solid progress in the Philippines, as I earlier reported, yes, and the second quarter will likely see also double-digit growth. And also, we are already profitable there. And so AI is playing a very key role in the Philippines, and I expect also in other markets, international markets. And yes, we are working closely with our partner in Indonesia for the launch, yes, sooner rather than later, I hope, yes, in the beginning of the second half of the year, and because our partner has very rich resources in Indonesia, and we contribute our great technology capability and also fintech experience in Mainland China and also in Philippines.

So there is strong synergy between the partners. And I very much hope that, yes, our results in Indonesia will also be very positive. William, you have more color to add?

William Hui: Yes. Well, I’ll just add some financial context into it. So in Q1, our international transaction volume has reached RMB 1.24 [ billion ]. That’s up 75% quarter-over-quarter with the loan facilitation for new borrower growing by 108%. So we expect a continued double- digit growth in loan volume in the second quarter. So in Indonesia, as Ning just mentioned, we are preparing for the launch, and we expect it will launch in the second half of this year. And meanwhile, besides the Philippines and Indonesia, we will continue to explore the possibilities of the other markets, such as the Middle East or even Europe.

Keyao He: Thank you. And I hope that answers your question, Chris.

Operator: Our next question comes from the line of [ Dale Tiongson ], a shareholder.

Unknown Shareholder: I just wanted to ask about the crypto asset that appeared on the balance sheet this quarter and then also the fair value adjustment. So any context there would be great.

Ning Tang: [indiscernible], this is about what asset.

Unknown Shareholder: Crypto asset and then also I think there was a fair value adjustment that took place in the quarter and in the cash flow statement, it looked like it might have been related to the crypto asset?

Ning Tang: Yes. This is part of our — yes, effort to, yes, invest our cash. And yes, so crypto is becoming more mainstream and part of the financial system. So it’s a minority piece of our investment efforts. And in the first quarter, it experienced some value drop. But as we see, its value has gone up? Yes. So we expect some fluctuation, yes, in this emerging asset class. But yes, we are hopeful that we are making through the investment and things will work out. William, you have more color to add?

William Hui: Yes, this is William. So yes, in the first quarter, we have allocated a small amount of our cash into crypto assets as we explore new ways to manage our, especially overseas cash and cash equivalents in our balance sheet. As Mr. Tang mentioned, yes, in the first quarter, there are some market valuation, and we have managed our positioning during the fourth quarter and second quarter. And we are happy to see that actually, the [indiscernible], we see has been already — the asset value has been growing back in the second quarter. And — but in the fourth quarter, the fair value changes on this investment item has been approximately USD 70 million. I hope that answers question.

Unknown Shareholder: Yes, that answer it.

Keyao He: [indiscernible] adjustment for fair value, we can see that the adjusted EBITDA in the first quarter was RMB 325 million, which is quite stable compared to the last quarter. So we expect the fair value adjustment will be lifted in the second quarter this year.

Unknown Shareholder: Okay. And then on the guarantee business?

William Hui: Just to the fair value changes in this asset class was RMB 70 million.

Unknown Shareholder: Great. And then when do you expect the guarantee business to sort of stabilize? Just in terms of — it looks like you’re still ramping it just when do you expect it to stabilize and potentially show profitability?

William Hui: Yes. Currently, the guarantee business is at around 40% level, and we believe the — less than 50% is our optimal target. So we expect it will continue to grow slightly in the next couple of quarters. And after that, it will start to come down as our non-guarantee business start to outgrow the sub-guarantee business.

Operator: Our next question comes from the line of Bruce [ Oren ] from Black Lab.

Unidentified Analyst: First, I’d like to say I’m delighted that Yiren Digital expects to benefit from consolidation in the new regulatory environment. I have 2 questions. First, concerning the sixfold increased provision for contingent liabilities, which has now grown to the largest operating cost and expense. Why would a higher volume of loans decrease profitability, especially since delinquency rates have remained stable? And my second question is, can you offer any insight into Yiren’s dividend commitment for later this year?

William Hui: Okay. To answer your first question about the 6x the provision, it’s because of we are taking a bigger position in the self-guarantee business. With that according to the accounting standards, we need to make the relevant provisions immediately, even though the revenue will come on a month-by-month basis. So with that, we — that’s why we see a hit on our margins in the — as we — as the loan volume growth in the self-guarantee assets. So I think that answered the kind of discrepancy between why the delinquency is low and the provision is high because it’s more like an accounting treatment for us. So for your second question about the dividend, I think it’s — we are committed to our semiannual dividend policies to ensuring the consistent value is returned to our investors.

So according to our semiannual dividend policies, our current dividend payout ratio stands at around 10% based on the earnings of that of the prior 6 months period. So while our payout ratio reached around 20% when we last pay out our dividend in May. So moving forward, we are carefully assessing the balance between increasing shareholder return and reinvesting in the high potential opportunities and innovation to drive a more sustainable long-term growth. So this strategic evaluation will guide us our decision to maximize the value for all stakeholders.

Keyao He: Yes. And we will do cash dividends next quarter. We will make the announcement next quarter because it is semi-annual.

William Hui: But at the same time, we are also noticing and comparing the dividend policies of our peers and then we will make a decision that will maximize the value for our shareholders.

Keyao He: I hope that answers your question.

Unidentified Analyst: Yes. I have a small follow-up. I failed to completely understand with the higher provision for contingent liabilities, is that a one-off for this quarter? Or can we expect levels of that level for continuing quarters?

William Hui: I mean every time when we increase the loan balance in this self-guarantee loans, then we need to increase our provision proportionately. So I think as we — as that the loan volume in that category continue to rise as we expect it will peak at around Q3, then after Q3, we will see that the provision will start to [ take ] off. But at the same time, the loan that we made earlier in Q1, we will start getting more interest revenue from it. So that will more or less offset the impact on the contingency liability. The way it works is when that loan balance reached a steady state, the provision will — the change in provision will start.

Keyao He: Yes. I hope that answers your question. And back to you, Operator.

Operator: This concludes our question-and-answer session for today. If you have any further questions, you can please connect the IR team of Yiren Digital. The conference has now concluded.

Yuning Feng: Thank you.

Operator: Thank you. For attending today’s presentation. You may now disconnect.