Yiren Digital Ltd. (YRD) Earnings Call Transcript & Summary

Good day, and welcome to the Yiren Digital First Quarter 2026 Earnings Conference Call. Before we begin, we'd like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and factors that could cause actual results to differ materially from those contained in any such statements. Further information regarding such risks, uncertainties or factors is included in the company's 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 law. During the call, we will be referring to certain non-GAAP financial measures and supplemental measures to review and assess the company's 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 the U.S. GAAP. For information about those non-GAAP financial measures and the reconciliations to GAAP measures, please refer to the company's earnings press release. As a reminder, this conference is being recorded. An investor presentation and a webcast replay of this conference call will be available on Yiren Digital's IR website. I will now turn the call over to the company's CEO, Mr. Tang, for opening remarks.

[ Hello ], everyone, and thank you for joining us. The positive trends we discussed last quarter continued to build in the first quarter, marking another important step forward in our transformation. We entered the year with stronger fundamentals in our traditional businesses, while making meaningful progress toward our long-term vision of building an AI-native, multi-industry operating platform anchored by our established fintech businesses. Operationally, our credit solutions business continued to recover as industry credit conditions improved following a year of challenging regulatory tightening and credit normalization. Through disciplined risk management, AI-powered operational improvements and a continued focus on higher-quality customers, we delivered healthier asset quality, stronger operating efficiency and improved profitability. At the same time, we accelerated the execution of our All-In AI strategy. Over the past year, we have integrated AI into every major business function, including marketing, customer acquisition, underwriting, risk management, collection and customer service. Today, AI is no longer just a tool for improving productivity; it's becoming a deeper part of how we operate our business. More importantly, we are expanding these AI capabilities beyond our own operations. Through internal incubation and strategic investments in AI-native startups, we are building an ecosystem that combines our fintech infrastructure, proprietary AI platform, computing resources and engineering capability with innovative AI applications across high-growth industries. What makes this strategy different is that our AI capabilities were developed inside real financial services businesses. This gives us practical experience, large-scale data and real business scenarios that can support future expansion into new industries, creating multiple new growth engines while reinforcing the competitive advantages of our existing businesses. Let me begin with our credit solutions segment. Following a period of regulatory tightening and industry-wide credit normalization, we saw a meaningful improvement in credit quality during the first quarter. This created a healthier operating environment and supported margin expansion. It also builds on the early signs of stabilization we shared last quarter and our AI capability in risk management to give us more confidence that the credit cycle is improving. Our repeat borrowing ratio reached a record 78% of loan volume, compared with 74% in the same period last year and 77% in the fourth quarter of 2025, reflecting the growing quality and loyalty of our customer base. AI-powered precision marketing continues to improve acquisition efficiency, reducing customer acquisition costs as a percentage of revenue by more than 50% year-over-year. Credit performance also improved. Our FPD30 plus rate declined to 0.76% in the fourth quarter of 2026 from 1.16% in the fourth quarter of last year, while our asset recovery rate increased for the first time in 5 quarters. These results demonstrate how our investment in AI are generating tangible business value. They are also improving operating efficiency, strengthening risk management and strengthening also our financial performance. Looking at our delinquency bucket, the 1 to 30-day rate improved to 2.5%. The 31 to 60-day rate improved to 2.7%. And the 61 to 90-day rate improved to 3.2%, with the early-stage buckets improving meaningfully from their fourth quarter 2025 peaks. Together with our leading credit indicators, these trends confirm that our proactive credit tightening measures are working, and we expect the later-stage buckets to follow as the credit cycle continues to turn. Turning to our insurance business. Despite continued industry-wide pressure on traditional brokerage commissions, our Internet insurance strategy continued to gain strong momentum. Revenue from Internet insurance business grew by 38% quarter-over-quarter, lifting the overall insurance segment to grow on both sequential and year-over-year basis for the first time since regulatory reforms were introduced 6 quarters ago. During the first quarter of 2026, we issued nearly 1 million new insurance policies, representing 135% growth from the same period last year. And the number of insurance clients reached approximately 400,000, up 4.1x year-over-year. These results underscore the stability of our Internet insurance model and its growing contribution to the overall platform. Looking beyond our core businesses, we believe the emergence of agentic AI represents one of the most significant and far-reaching technology shifts in decades. We are positioning ourselves to capture this opportunity by building an integrated AI ecosystem centered around 3 complementary pillars. The first pillar is our established fintech platform, including our lending, insurance and other established fintech businesses, while -- which provide recurring cash flow, large-scale application scenarios and valuable proprietary data. The second pillar is AI infrastructure. We are currently evaluating opportunities to further strengthen our AI computing capability, including the potential consolidation of our existing computing resources to support our growing internal AI initiatives. We are also assessing how these capabilities could over time create opportunities to serve enterprise customers. As this initiative remains at an early stage of evaluation, we are carefully assessing the technical, commercial and capital allocation considerations before making any investment decision. We will provide updates as our assessment progresses and when there are material developments to share. The third pillar is AI applications. We are incubating specialized AI agents across financial services, including intelligent credit management and insurance assessment, as well as new applications in areas such as education, professional development and entertainment, all of which represent large and rapidly expanding markets with significant long-term growth potential. Going forward, we will continue to expand these 3 pillars through internal innovation, strategic investments and ecosystem partnerships. Our objective is to build a diversified portfolio of AI-native businesses supported by our proprietary AI infrastructure. At the same time, our established fintech platform will serve as a core enabler of this ecosystem, embedding lending, insurance and other fintech capabilities into AI applications, while providing real-world deployment scenarios, customer access and commercialization opportunities across the platform -- the portfolio. In parallel, we will continue to invest in the next-generation financial technologies that underpin this ecosystem, including our proprietary AI infrastructure, multi-agent platforms and engineering capabilities, positioning the company to capitalize on the long-term opportunities created by the rapid advancement of AI and adjacent industries. Now let me walk you through the key AI innovations we have made in recent months. Building on the success of our proprietary large language model, Zhiyu, and the first generation of our multi-agent platform, Magicube 1.0, we recently launched Magicube 2.0. The release marks an important step forward, moving from AI-assisted productivity towards more autonomous enterprise execution. First, we significantly strengthened AI governance, security and enterprise control. Our intelligent orchestration agent, ZhiNao, serves as the centralized control hub for managing specialized AI agents across organizations. By providing unified permission management, governance, auditability and security controls Magicube 2.0 addresses one of the biggest barriers to enterprise AI adoption and enables organizations to deploy AI agents with greater confidence. Second, we have moved beyond AI assistance to autonomous AI execution. With the governance framework now in place, our agents are able to execute complex workflows reliably with minimal human intervention. For example, our XuanJi agent can autonomously complete large volumes of operational workflows, reducing cost to serve considerably while improving execution speed, consistency and service responsiveness. Third, we substantially enhanced enterprise intelligence. Through ZhiNao, Magicube 2.0 seamlessly connects previously siloed enterprise systems, integrates structured and unstructured knowledge across departments and generates more comprehensive context-aware insights. This enables AI agents to produce more accurate, consistent and reliable outcomes across a wide range of business scenarios. Magicube 2.0 is much more than a product upgrade. It is an enterprise-grade AI operating platform that enables organizations to deploy secure, autonomous and scalable AI agents, driving higher productivity better decision-making and lower operating costs across both financial and nonfinancial industries. It is becoming the core AI platform that supports both our internal business operations and our long-term ecosystem strategy. Now let me turn to our AI strategy and the ecosystem we are building to drive our next phase of growth. Over the past 3 years, we have strategically invested in and incubated more than 9 innovative startups. These companies are led by exceptional entrepreneurs with differentiated technologies, strong product vision, and significant market potential across AI and the next-generation technology sectors. Our role extends well beyond that of a financial investor. In addition to providing growth capital, we actively support these companies through talent recruitment technology collaboration, product strategy, commercialization and business development. By leveraging our fintech infrastructure, AI platform, engineering capability and public company resources, we help accelerate their path from innovation to scalable businesses. This collaborative model has created a strong strategic alignment between our company and our portfolio [ founders ]. As these businesses continue to mature, we believe they have the potential to create meaningful long-term value for both their customers and our shareholders. Reflecting this shared vision we have entered into warrant agreements with 4 companies, including the ones we already invested in. While there is no obligation, these agreements provide us with the option to increase our ownership over time. We have the option to take a controlling interest in the future as prearranged excess price subject to the achievement of specified operational and strategic milestones. These are staged investment rights and do not constitute current control or consolidation. This structure allows us to participate in potential upside as these companies grow while maintaining disciplined capital allocation and limiting upfront capital commitment. It also provides a flexible and a capital-efficient pathway to selectively bring the most successful businesses into our ecosystem over time. Today I will introduce 2 of these companies, both of which demonstrate how our incubation strategy is translating AI innovation into commercial opportunities. The first company is an AI-native education technology platform focused on delivering personalized large-scale learning experiences. Comparable to leading global AI education platforms, it leverages generative AI to create adaptive learning content tailored to each user's proficiency, significantly improving learning efficiency, accessibility and engagement across language learning and professional skills development. The platform is deeply integrated with China's leading social media ecosystem, enabling higher efficient user acquisition and rapid product distribution. In May, it achieved approximately RMB 2 million in monthly GMV and is growing at a double-digit rate month-over-month, demonstrating strong product market fit and early commercial traction. The company has also started expanding into international markets, creating additional long-term growth opportunities. Looking ahead, we see 3 primary growth drivers for this business. First, continued product innovation powered by generative AI will further enhance personalization and user retention. AI is fundamentally reshaping the product development cycle, enabling rapid experimentation, faster feature releases and continuous improvements to the user experience, at a pace that was previously unattainable. Second, we continue to see significant organic growth in the domestic market as AI adoption in education accelerates and the penetration of AI-native learning solutions remains in its early stages. Third, the company is well positioned to expand its success internationally through overseas market expansion, leveraging its AI-driven platform to efficiently localize content and scale across new markets. We believe this company has the potential to become one of the leading AI-native learning platforms in Asia and an important pillar of our expanding AI ecosystem. The second company is an AI-native entertainment company focused on building next-generation digital intellectual property. By combining generative AI with creative production, the company is fundamentally transforming how original content is developed, produced and commercialized, allowing high-quality IP to scale much more efficiently than traditional entertainment models. Its flagship product is a 2.5D anime-style role-playing game that combines tactical combat world exploration and immersive storytelling within postapocalyptic universe. The game is designed around a highly engaging, character-driven experience. Complemented by base building and social interaction mechanics that support long-term player engagement, the game has affected more than 350,000 followers globally, demonstrating strong early community traction and brand recognition. What differentiates the company is its AI-native content production pipeline. By leveraging generative throughout game development and creative production, the company is able to significantly accelerate content creation, short-term development cycles and continuously expand its universe with new characters, story lines and experiences. This capability positions the company to evolve beyond a single game into a scalable, multi-format entertainment franchise spanning animation, music, merchandise, creator content and offline fan engagement, creating multiple recurring monetization opportunities and deeper long-term user engagement. We believe AI will fundamentally reshape the entertainment industry over the coming decades. The company represents an early example of how AI can accelerate IP creation, deepen user engagement and unlock new business models, making it an important component of our long-term AI ecosystem strategy. Before I conclude, let me leave you with one final thought. As we see it, AI is not simply another technology cycle [indiscernible] how services are delivered and how value is created. Our strategy is not to build a single AI product or participate in a single market opportunity. What we are building is an integrated AI ecosystem that spans infrastructure, enterprise platforms and AI-native applications across multiple high-growth industries. What differentiates us is the combination of assets we have assembled. Our established fintech businesses continue to generate stable cash flow and provide large-scale commercial application scenarios. Our proprietary AI technologies, computing infrastructure and engineering capability form the technical -- technological foundation. Through strategic incubation and investment, we are adding innovative AI companies that expand our ecosystem into education, financial intelligence, entertainment and other emerging sectors. Together, these elements reinforce one another and create a powerful value chain that is difficult to replicate. We believe this integrated model will allow us to capture value across every layer of the AI economy, from enabling AI infrastructure to powering enterprise transformation, to omni AI-native applications that directly serve millions of users. As each platform company grows, the value of the entire ecosystem increases. As we move through the year, we'll continue executing this strategy with discipline. We will invest in technologies that strengthen our competitive advantages, partner with exceptional entrepreneurs and selectively bring the most promising businesses into our corporate family. At the same time, we will continue to grow our existing businesses driven by AI-powered lending and insurance, maintain prudent capital allocation and create sustainable long-term shareholder value. We are still in the early stage of our AI journey, but we have never been more confident in the opportunities ahead. With a stronger traditional business and expanding AI ecosystem and a clear long-term strategy, we believe we are well positioned to create the next generation of intelligent financial and digital services. Before I close, I also want to thank our entire team whose dedication and resolve through one of the most demanding periods in our recent history made this progress possible. And thank you to our shareholders for your continued trust and support. We look forward to updating you on our progress in the coming quarters. Now I will pass the call to William to review our financials.

Thank you, Ning. Hello, everyone, and thank you for joining our call. Before I review our financial performance for the first quarter, I would like to point you to our IR website for our earnings release and quarterly IR pack for your reference and additional details. As Ning mentioned, the first quarter of 2026 was an important inflection point for the company. While our reported results continue to reflect the impact of the industry's credit normalization and the deliberate resizing of our lending portfolio over the past year, our underlying operating fundamentals have meaningfully improved. What we are beginning to see are the financial benefits of the structural change we have made over the past several quarters. This includes more disciplined credit selection, AI-driven operating efficiencies and the continued diversification of our revenue base. While fintech remains our core business today, we are also laying the financial foundation of new AI-driven growth initiatives that we believe will enhance the resilience of our business over time. Today I will focus on 5 areas: revenue, credit costs, provisions -- credit costs and provisions, operating expenses, our balance sheet, capital allocation and our outlook. On the revenue side, the total net revenue for the first quarter was RMB 915.1 million, representing 41% decrease year-over-year, but only 4% decrease sequentially from RMB 957.6 million in the fourth quarter of 2025. This shows an increased stabilization on the credit risk. This was also supported in part by the deferred revenue recognition features of the risk-free model which is beginning to provide a more stable revenue stream from the legacy assets built up over the past few quarters under this model. Revenue from the credit solutions business was RMB 795.7 million, down 4% quarter-over-quarter. The relatively stable revenue performance compared with the loan origination reflects the continued recognition of deferred revenues associated with legacy risk-taking assets, which partially offset lower revenue generated from new loan facilitations. The positive momentum in our insurance brokerage business that we saw in 2025 continued in the first quarter this year as its revenue reached RMB 87.2 million, increasing 4% sequentially and 22% year-over-year, marking another quarter of solid progress following our strategic repositioning of the business towards digital distribution. Internet insurance now contributes 29% of the total insurance revenue, compared with 22% in the previous quarter and a negligible contribution year over a year ago. The continued migration of consumers towards online insurance purchasing behavior combined with our AI power customer acquisition capabilities position this business to become an increasingly meaningful contributor to our revenue mix over time. Now let's talk about credit costs and provisions. The most significant drivers of our quarter-over-quarter earnings improvement was the normalization of the credit-related provisions. As Ning mentioned, industry-wide credit conditions improved meaningfully during the quarter. Together with our disciplined underwriting strategy, this resulted in lower-than-expected credit loss across our portfolio. Let's go through the key financial figures associated with the credit risk. The allowance for credit assets, receivables and others declined to RMB 176.4 million, from RMB 302.8 million in the fourth quarter of 2025, a reduction of approximately RMB 126.4 million. This primarily reflects improving portfolio performance and the absence of significant portfolio re-rating adjustment recognized in the prior quarter. The provisions for contingent liabilities was RMB 632.2 million, compared with RMB 1.11 billion in the fourth quarter of 2025, a substantial reduction of RMB 478 million. While provisions remained higher than the same period last year due to a higher portion proportion of loans facilitated under our risk-taking model, the quarter-over-quarter improvement reflects healthier credit performance and lower loan origination volumes. Adjusted EBITDA loss for the first quarter 2026 narrowed significantly to RMB 337 million, compared to a loss of CNY 1 billion in the fourth quarter of 2025. This was a substantial improvement. The substantial improvement is primarily attributed both to the underlying credit recovery in the business and the operating leverage generated by our ongoing AI-driven cost optimization initiatives. We expect these structural improvements to continue supporting earning quality going forward. During the quarter, we recorded a fair value loss of RMB 89 million, primarily related to the movement in the value of our digital asset holdings. This reflects normal mark-to-market accounting and does not affect the underlying operating performance of our business. Despite that, the net loss improved to RMB 494.7 million from a loss of RMB 868.2 million last quarter. While we monitor the development of macroeconomic and regulatory environment, the continued normalization of credit quality, together with our improved operating efficiency and more diversified business mix give us increasing confidence in the company's projection towards sustainable profitability. So now let's move to operating expenses. Sales and marketing expenses were RMB 113.6 million, representing 45% decrease from the fourth quarter 2025. This reflects our disciplined customer acquisition strategy, lower marketing intensity and continued improvement in AI power precision marketing. With repeat borrower accounting for 78% of our total loan volume, [ yearly sources ] of our lending business now require minimal incremental acquisition spending, improving the overall efficiencies of our marketing investment. Origination servicing and other operating costs declined to RMB 197.6 million from RMB 250.9 million in the previous quarter. This decrease reflects continued operational cost optimization in the insurance business as we transition to digital distribution channel, and it contributes to higher portion of revenue. Research and development expenses were RMB 108.9 million, down 10% sequentially but up 27% year-over-year. We will continue to invest in R&D to support our AI ecosystem initiative and monetization of our technologies. This planned increase affects our deliberate capital allocation toward enterprise AI capability and engineering talent. While these expenditures are recognized as operating expenses under current accounting standards, we view them as strategic investment that strengthened our long-term competitive positions. We expect these investments to continue improving our cost structure and product development capability over time while creating technology assets that support multiple business lines across the company. In parallel with our internal technology developments, we are selectively investing in AI-native companies that complement our long-term strategy. These investments expand our access to emerging technologies, entrepreneurial talent and new application scenarios while strengthening the broad AI ecosystems which are building. General and administrative expenses were RMB 7.5 million, decreased by 26% compared to the first quarter of 2025. The year-over-year improvement in G&A expenses reflect the continued cost optimization within our insurance brokerage operation as the distribution shift towards more efficient digital channels, together with increasing automation across customer service, operations and collections enabled by our AI platform. Let's move to balance sheet and capital allocation. Our balance sheet remains strong. As of March 31, 2026, cash and cash equivalents of RMB 2.45 billion and restricted cash of RMB 383.4 million, which, together with financial investments of RMB 507.5 million, brought a total liquidity to approximately RMB 3.3 billion. This strong liquidity position allows us to continue investing in innovation while maintaining prudent approach to risk management and preserving financial flexibility. Beyond our liquidity positions, we have also been steadily building strategic investment that complements our core operating businesses. Under the current accounting standard, many of these investments are reflected either at historical costs or under the equity investments, meaning the carrying values may not fully reflect the operational progress due to performance or strategic importance to us. Our objective is not short-term financial gain, but to build long-term strategic partnerships that can enhance our technology capabilities, broaden our AI ecosystems and create additional opportunities for future growth. As Ning mentioned, some of our investments also include performance-linked warrant arrangements that provide us with the options to acquire more shares that leads to maturity [ stakes ] at pre-agreed price if and when any of these portfolio companies achieve specific operational milestones. This structure aligns our capital deployment with the operational progress of our portfolio companies, while preserving balance sheet flexibility. We will continue to evaluate these investments carefully and provide updates as they reach meaningful commercial and financial milestones. For the financial outlook, looking ahead, we remain cautiously optimistic about the remainder of 2026. First, on credit. The importance in our asset quality -- the improvement in our asset quality has continued through April and May, consistent with the trend Ning discussed earlier. And we expect this to support lower provisioning requirement in the coming quarters. Second, on growth. We expect the strong momentum from our Internet insurance business to continue as customer behavior increasingly shift towards more digital, 7/24 customer service and on-demand protection solutions. Beyond Internet insurance, our strategy to diversify from traditional fintech to AI-enabled entertainment and learning technologies also creates a very compelling expansion of our growth opportunities. Third, on AI. Across the organization, AI is delivering tangible benefits in automation, decision-making and operational efficiencies. We believe these benefits will continue to compound as adoption expands across additional business functions. Together with our disciplined internal AI developments and external and synergetic PI investment, these initiatives advance our strategic business to an AI-native, multi-industry operating platform. Overall, the company today is structurally different from where it was a year ago. Our earnings profile is becoming increasingly diversified. Our operating model is more efficient. And our technology capability continues to strengthen. At the same time, we are deliberately allocating capital toward AI technologies, strategic investments and [ warrant decisions ] that complement our existing operations and support our long-term transformations. While this investment remains at different stages of maturity, together they represent an increasingly important component of our capital allocation strategies. Our capital allocation priorities remain unchanged. We will continue investing prudently in technologies and businesses that strengthen our competitive advantages, maintain a disciplined approach to risk management and preserve the financial flexibility needed to execute our strategies. We believe this balanced capital allocation framework that combines disciplined investments in our core business, internal AI developments and selective external AI investments position us to participate in multiple layers of the AI value chain while maintaining a prudent financial profile. Thank you. This concludes our prepared remarks. Operator?

Due to time constraints, we will not be holding a Q&A session for today's call. We appreciate your understanding. If you have any further questions, please connect to the IR team of Yiren Digital or Piacente Financial Communications. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.