LexinFintech Holdings Ltd. ($LX)

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.