Ladies and gentlemen, thank you for standing by, and welcome to the LexinFintech second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Miss Patricia Cheng, Head of Capital Markets. Thank you. Please go ahead. Hi everyone, welcome to LexinFintech second quarter 2021 earnings call. Our results were issued earlier today and are available online. Joining me today on the call are Mr. Jay Xiao, our Founder, Chairman, and CEO. Mr. Kris Qiao, our Interim CFO, Mr. Jayden Qiao, Chief Risk Officer, and Ms. Beryl He, Senior Finance Director. Jay will first provide an overview of our recent performance and highlights. Kris will then discuss the financial results. Jayden will cover credit performance. Before we begin, please note the safe harbor statement in the earnings press release, which applies to this call as well, because we will be making forward-looking statements. The call may include discussions of non-GAAP financial measures. You can find the reconciliation between non-GAAP and GAAP in the earnings press release. Finally, unless otherwise stated, all numbers mentioned during this conference call are in RMB. I will now pass it over to Jay. His remarks will be in Chinese and translation will follow. Jay. [Non-English content] Hello everyone, it's my pleasure to speak to you all again. The second quarter was a major milestone for Lexin. We achieved all-time high in several key metrics. Loan origination, loan outstanding, operating revenue, and net income all made record breakthroughs. This is not an easy victory. We have gone through many ups and downs in our journey, and we have always responded with vigor. For those of you that have been following us, you were witness in some of our most difficult and challenging moments. Saw firsthand how the team responded to change and turned the business around. Especially following the decline in credit performance after COVID-19 last year. The incident made us rethink our strategy and carry out a full upgrade of the risk control system, strengthening our capability in managing our risk asset quality. The efforts have been paying off. Our credit performance continued to trend well in the past few quarters. The 90-day delinquency ratio fell by over 100 basis points to 1.85% year-over-year in the second quarter. Sequentially, the level was held steady. Jayden will elaborate on this later. What I would like to highlight is a series of changes we have implemented and the capability that we have built up. They have laid a solid foundation, helping us to face any industry headwinds that may come our way. Now let me get to what you are most interested in, the regulatory change, especially the 24% pricing cap, how it will affect us and how we will be responding. This will have a major impact on the industry, and in response, we are also embarking on a transition ourselves. First of all, we will slow down our pace. We will step up the focus on asset quality and profitability of our business model. We have therefore decided to lower full year loan facilitation volume to RMB 230 billion from RMB 240 billion-RMB 250 billion previously. At Lexin, a healthy and sustainable business model is more important than scale. We will not sacrifice the long-term health of the company for the sake of volume in one or two quarters. With pricing affected by the 24% cap, we will embrace more precision and differentiation in our customer strategy. We will scale back from low-quality customers. We set a risk preference in order to adjust down overall asset risk. For customers currently at below 24%, there's scope for pricing to go up. We will increase the intensity on servicing this group and increase their size. In addition, we will also enhance our operational efficiency, with the ultimate goal of maintaining profitability of our business. The industry will never stop evolving. We are confident that any impact will be transitory and manageable, and once the measures get all put in place, profitability will return to current levels. Ensuring quality and sustainable growth of the core business is a top priority. At the same time, we will also continue to further develop our new consumption strategy. Momentum for Maiya, that is our buy now, pay later product, remained strong in the second quarter. Working with over 1,000 merchants and serving over 600,000 consumers, it generated GMV of RMB 3.9 million, more than five times the amount we got in the first quarter. The initiative will allow us to tap into new opportunities and diversify the revenue base. At the core of consumer finance lies consumption and finance. The two can drive a much stronger outcome when they go hand in hand. This is the belief of Lexin and also our core competence. Thank you for your interest and support. Next, I would like to invite Kris to go through the financials in more detail. Kris. [Non-English content] We are proud of the performance in the second quarter. Customer metrics, top line and bottom line all reached record high. Let me explain the drivers in more detail, starting with the top line. Number of active users reached 8.4 million in the quarter, 24% high year-over-year. Loan origination rose by 47.6% to RMB 60.6 billion year-over-year, and loans outstanding increased by 46.2% to RMB 90.5 billion. Total revenue went up by 10.5% to RMB 3.3 billion as a result, setting another record level. It was also higher sequentially by 11%. Platform-based services income was the biggest revenue driver, up by 47.9%. The part of revenue without any credit exposure, that is platform-based services plus online services, now made up a 1/3 of our total revenue. Moving on to credit cost and funding. Both maintained good momentum in the second quarter. Provision held steady sequentially, indicating stable asset quality of our portfolio and our ability in managing risk, which Jayden will talk more about later. Additionally, funding costs continued to go down quarter-over-quarter. Driven by the positive trend in volume, risk, and funding, take rate improved both year-over-year as well as quarter-over-quarter. While spending in sales and marketing went up in the second quarter as in line with the industry trend, and we maintained our discipline in administrative and other expenses. From business mix to risk management, funding structure, and cost control, all this came together to drive the 87.7% growth in net income. Amid the regulatory headwinds, we will continue to stay prudent in risk management and cost management. As Jay said at the beginning, we will not compromise on quality for the sake of scale. Next, I would like to turn the call over to Jayden to discuss our credit performance. Jayden, over to you. Thank you, Kris and Patricia. As both Jay and Kris mentioned, asset quality remained stable in the second quarter. Our 90+ days delinquency ratio finished quarter at 1.85%, down over 100 basis points year-over-year. It remained steady to first quarter's 1.84%. Moreover, the 30+ days delinquency ratio improved to 3.37% from 3.6% in the first quarter. In terms of charge-off, the vintage rate was also stable at about 3.5% for loans originated during the 12 months ended June 30. The new customers that we acquired in the second quarter so far have proven to be as good as first quarter, as shown by the first payment default rate for 30+ day. FPD 30 for new loan originations remained at below 1%. Of course, we cannot be content with our existing efforts. Regulatory changes will lead to changes in industry and credit quality. We need to make sure that our system can screen in quality assets, set the right pricing, and monitor performance. To this end, risk management remains the key focus. I took on the CRO role earlier this year with clear mandate to solidify our risk control initiatives. We have been instituting changes before the latest policy changes. These include refining risk strategies across customer life cycle, as well as strengthening the risk models for each product and channel. We have also stepped up the collection effort. All these aim at boosting Lexin's capability to weather any market uncertainties. With that, I conclude our prepared remarks. Operator, please proceed with the question and answer session. Thank you. We will now begin the question- and- answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please note there may be a short pause as we collate the questions. Your first question comes from the line of Abby Long of Bank of America, Merrill Lynch. Please ask your question. [Non-English content] I have two quick questions. The first one is about the regulation. As Jay mentioned that you guys would be adjusting down the full-year loan growth target. On a user perspective, how would that change our user acquisition channel or our marketing activities? Secondly about buy now, pay later initiative. Any demographic or user profile characteristics that you can share with us? How these users may be different from the mainstream users of our loan borrower user base? Thank you. [Non-English content] Let me do very quickly the translation of this. On the regulatory change, we have decided to revise our guidance because quality is very important to us. That's why in this process, we need to reduce high risk users. The purpose is to maintain take rate and profitability of our business. You can see that the changes that we have to make include funding and also how to service our existing users, and also in terms of our customer acquisition strategy. There's going to be major adjustments that we have to do and also we have been doing. We have been adjusting our business as a result. For our customers, now when you look at them based on the 24% criteria, we have to adjust how we screen and how we do the advertising. We will not go after small amount loan size and also a high pricing rate. We also have to strengthen our reach to this core group of our customers. Of course, there will be some increase in the cost. In terms of the offline, we will also step up our offline team and build out. When you look at our [Non-English content] business, the offline business, all the pricing is below 24%. Also the asset quality is better than the overall average. Also the average loan size is also higher. So this is a main channel for us and one that we will continue to invest in. At the beginning of the year, there's about 1,000 people in the team. Now it's about 2,000. We already started to see the impact in the third quarter. When we look at the monthly contribution from the [Non-English content] team, it's almost double from the beginning of the year. [Non-English content] [Non-English content] On Maiya, the quality from the Maiya users is significantly better than Fenqile. There are two characteristics. First of all, Maiya the product itself is interest-free installment. When you look at interest-free, naturally it's going to attract good quality customers. When you have high interest rates, only the poor quality guys would actually go for the high interest rates because they cannot get loans elsewhere. For this one, it's interest-free. It naturally attracts the good quality users. Then second characteristic is data. We do it offline together with malls and other brands. Nowadays only customers with a certain income level would go to a mall and these shops. Again, for that one, we are able to attract better quality customers this way. So far, when you look at the potential and risk, we do see that Maiya is better than our Fenqile. [Non-English content]Thank you very much. Thank you. Your next question comes from the line of Ethan Wang from CLSA. Please ask your question. [Non-English content] So I have two questions. The first one is still on the regulatory challenge about keeping the APR lower than 24%. Wondering if management has done some quantitative forecast on the impact to take rate and origination in the next two years-three years. The second question is on the capital-light. This model we've been doing the transformation to capital-light for some years, we decided to keep that percent stable. Wondering under the new 24% APR cap, does that strategy change or we just want to remain at the current level. Thank you. [Non-English content] We have carried out internal analysis and models on the 24% impact. At the moment, most of our customers in terms of risk profile, they are below 24%. For this group of customers, definitely we have scope. We can bring down the pricing to meet the criteria, and we will keep these customers and their volume. For the group with risk above 24%, this is the group that we need to reduce. With lower pricing, our aim is to bring down the overall risk. We have to maintain our asset quality. On the profit-sharing model, that is the capital-light model that you mentioned, we aim to at least maintain at today's level. Of course, we would look at the mix between profit sharing and risk sharing. We will adjust the mix. The aim is, of course, to ensure that we meet the requirement and also to keep the asset quality. Once all the measures that we have begun, once they are all put in place, we do expect that our take rate will be about 3%-3.5%. We will be able to maintain at that level. Got it. Thank you. Your next question comes from of [TL] MS. Please ask your question. [Non-English content] So I briefly translate the first question is about the new personal data protection regulations and just want to ask management, based on your judgment, which roughly what part of the process can be impacted and should be modified as a result. Is there any preliminary plan? Related to the extra compliance cost, what would roughly be the impact to the cost side? The second question is related to the 24% pricing cap. Just wonder is there any new levers then Lexin can pull in order for lower potentially funding costs? Thanks. [Non-English content] On the personal data protection, that one, the principle is based on the minimal requirement. This is a principle that we have always been following in our data collection and process. We have made adjustments to our app as a result, in order to make us more compliant. There are some minor changes. For example, in the authorization process, in the past, there was a master authorization. The users, they would agree to a master policy. Now in each usage scenario, the individual would have to give a separate permission on it. That's going to increase a compliance cost a little bit, but it's not going to affect the results of our risk analysis. At the moment, there are a lot of like definitions and also the details are actually not yet come out from the regulators. Exactly how much change or how much more change we'll have to carry out, we will closely monitor the situation. [Non-English content] On your second question about funding costs. In the long run, we do expect the funding cost to be stable and also to go down a little bit. With the pricing cap of 24%, that means risk is going to improve, and asset quality is also going to be better. That will allow us to tap into more funding partners. We will also increase the issuance of ABS, that will help us to improve our funding structure and also the funding cost. Thank you very much. Your next question comes from Alex Ye of UBS. Please ask your question. [Non-English content] I will translate my question. First one is on your latest development of your SME loans. I'm wondering whether the average interest rate are all capped at below 24% for this type of SME loan. If it is, then I would presume it would be under less affected by the 24% IRR cap. Would you expect this business to continue maintain a stable growth driver for growth for the next year? Do you have any form of targeted volume contribution for this SME lending business in the next two years-three years? My second question is about Maiya business. Could you share with us the latest development status for this business, for example, the latest growth status for the past few months? How do you plan to continue to grow this business going forward? Thank you. [Non-English content] We started the SME business this year. Because on our platform, some of the users, they are actually small business owners. We started this group. We do the lending based on tax and invoices, and the business that we serve include the cross-border e-commerce and the auto industry. We take a prudent view in this business. Because we can see that, for the SME lending, the loan amount is bigger than retail, and also the duration, it takes longer to see the progression of risk and to monitor the performance. Right now we are starting with a test sample so we can better observe the risk characteristics and also we can fine-tune our risk model. If a risk model proves to be effective, we will go into step up the volume next year. [Non-English content] On Maiya, we also started this new business early this year. As I said earlier, the quality have been better than our average user, and also we see strong potential coming from this market. First quarter that was our initial roll out, and the second quarter we are pilot tested the business in more industries. We work with more brands and the feedback from them has been positive. We do see that there's recognition in China for this business and that's going to help drive the GMV. For some brands that we do offline, they have reported back that the average spending has gone up. There's also more additional purchases. From 3Q, we've been building regional teams. In the second quarter, we pilot tested it in Shenzhen, and now we are rolling it out in a few more cities to further test this business model. Now I have to say that it's still in an early stage, but then we look at the buy now, pay later model, it's present globally. I do see that there is strong potential in China. Lexin is definitely one of the leading players in the area. [Non-English content] Thank you. Your next question comes from Jacky Zuo of China Renaissance. Please ask your question. [Non-English content] I have two follow-up questions. Number one is also about Maiya. Given we are starting to assemble our regional teams for Maiya, do we have any Maiya GMV guidance for the third quarter? Second question is about also the third quarter so far the loan volume and APR color. For the loan volume so far, what is the expected volume compared with the second quarter? Based on my understanding, we are maybe start to adjust the APR. What is the APR level in the third quarter? How will that impact our net take rate? What is the percentage of the high risk customers based on our estimate? Thank you. [Non-English content} On Maiya, we do expect meaningful increase from second quarter to third quarter. As I said earlier, we've been building our teams in new cities and going beyond Shenzhen. Of course more meaningful growth will come after the complete build out. At the moment, we do see meaningful increase Q- on- Q, and also we are trying to bring more cooperation agreements online. [Non-English content] On your second question about the APR and take rate. We started adjusting our business as soon as the policy came out. In July and also August, APR has been in a downtrend, and it has led to a lower take rate. Of course, in this adjustment process, our risk has also been improving, so therefore the risk cost will be lower. How is a bit too early to say, because we only started this process. You are not going to see any immediate numbers or any immediate results. We do expect that once we complete this process, we will be able to get a better risk and we will be able to maintain our profitability. [Non-English content] On your third question about the high risk borrowers in the third quarter. At the moment, if you look at our borrowers with actually pricing risk above 24%, this portion is less than 10%. In Q3, we have already started to further lower this part. Let me talk about how we do this in terms of our existing customers and also new customers. For our existing customers, definitely we do expect higher default, some difficulty in the repayment when the liquidity gets tighter. We are going to manage them through a continuous monitoring. At the same time, when you look at our new customers, this group we have fine-tuned our strategy in terms of customer acquisition, further segmentation, and in terms of the new risk that we are acquiring, it will be much better quality. It's going to be able to offset the risk coming from the existing customers. We do expect a more stable performance. [Non-English content] Jay. Once again, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. Once again, it is star and 1 if you wish to ask a question. Operator. Once again. I think we can. Yes. Yeah, I think we can wrap up the call here. If there's any further questions, we can always continue offline. Thank you. Ladies and gentlemen, that does conclude the conference call for today. Thank you.