[Introduction](index=4&type=section&id=INTRODUCTION) [Definitions and Conventions](index=4&type=section&id=INTRODUCTION) This section defines key operational terms, clarifies the VIE corporate structure, and specifies the reporting currency and exchange rates - The company conducts its operations in China through a combination of PRC subsidiaries and **Variable Interest Entities (VIEs)**, with which it has contractual arrangements[6](index=6&type=chunk) - The reporting currency is the **Renminbi (RMB)**, with all U.S. dollar translations made at a rate of **US$1.00 = RMB6.8972** as of December 30, 2022[7](index=7&type=chunk) - Key operational terms defined include **'originations'**, **'active users'**, and **'90 days+ delinquency ratio'**[5](index=5&type=chunk) [Forward-Looking Information](index=6&type=section&id=FORWARD-LOOKING%20INFORMATION) This section outlines forward-looking statements regarding future performance and trends, noting associated risks and uncertainties - Forward-looking statements cover areas such as **company goals and strategies**, **future business development**, financial condition, and market growth expectations[9](index=9&type=chunk) - The company operates in a rapidly evolving environment, and it cautions that **actual future results may be materially different** from what is expected[10](index=10&type=chunk) [PART I](index=7&type=section&id=PART%20I) [Item 3. Key Information](index=7&type=section&id=Item%203.%20Key%20Information) This section details the company's VIE corporate structure, presents selected financial data, and outlines key associated risks [Selected Financial Data and Corporate Structure](index=7&type=section&id=A.%20Selected%20financial%20data) This sub-section explains the VIE operational structure, presents consolidating financial statements, and discusses related risks - LexinFintech is a Cayman Islands holding company operating in China through **contractual arrangements with its Variable Interest Entities (VIEs)**[12](index=12&type=chunk) VIE Revenue Contribution | Year | Revenue Contribution from VIEs (%) | | :--- | :--- | | 2020 | 99.4% | | 2021 | 97.5% | | 2022 | 94.2% | Cash and Asset Transfers (Year Ended Dec 31, 2022, RMB in thousands) | Transfer Description | Amount | | :--- | :--- | | Service fees paid by VIEs to PRC subsidiaries | 1,539,812 | | Goods/service fees received by VIEs from PRC subsidiaries | 13,004 | | Funds from parent to Cayman, BVI, and Hong Kong subsidiaries (net) | (36,817) | | Funds from Cayman, BVI, and Hong Kong subsidiaries to parent (net) | (323,446) | | Funds provided by PRC subsidiaries to VIEs (net) | (1,507,456) | | Funds provided by VIEs to PRC subsidiaries (net) | 61,831 | Condensed Consolidating Statement of Operations (Year Ended Dec 31, 2022, RMB in thousands) | Account | Parent | Other Subsidiaries | Primary Beneficiary of the VIEs | The VIEs and the VIEs' subsidiaries | Consolidated totals | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Operating revenue** | — | 161,811 | 2,036,113 | 9,298,063 | 9,865,811 | | **Gross profit** | — | 84,100 | 1,767,386 | 2,813,370 | 3,034,716 | | **Income before income tax** | 819,752 | 872,225 | 1,076,608 | 36,225 | 1,028,569 | | **Net income** | 819,752 | 872,049 | 888,094 | 22,275 | 825,929 | Condensed Consolidating Balance Sheet (As of Dec 31, 2022, RMB in thousands) | Account | Parent | Other Subsidiaries | Primary Beneficiary of the VIEs | The VIEs and the VIEs' subsidiaries | Consolidated totals | | :--- | :--- | :--- | :--- | :--- | :--- | | **TOTAL ASSETS** | 11,087,234 | 11,032,632 | 9,262,744 | 19,835,968 | 22,770,703 | | **TOTAL LIABILITIES** | 2,438,483 | 291,398 | 991,751 | 17,544,534 | 14,121,952 | | **TOTAL SHAREHOLDERS' EQUITY** | 8,648,751 | 10,741,234 | 8,270,993 | 2,291,434 | 8,648,751 | [Risk Factors](index=19&type=section&id=D.%20Risk%20Factors) This section outlines significant risks related to the VIE structure, PRC operations, business-specific challenges, and ADSs - The company's reliance on VIEs is a primary risk, as these entities **contributed 94.2% of revenue in 2022** and could be deemed non-compliant by the PRC government[60](index=60&type=chunk)[73](index=73&type=chunk) - Significant risks from PRC government oversight and **new regulations requiring CSRC filing for overseas offerings** create uncertainty for future capital raising[113](index=113&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) - There is a **risk of delisting from U.S. exchanges under the Holding Foreign Companies Accountable Act (HFCAA)** if the PCAOB cannot inspect the auditor in the future[181](index=181&type=chunk)[185](index=185&type=chunk) - Evolving PRC regulations on interest rates, including a **lowered cap for protected private lending rates**, could materially impact the business[205](index=205&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - The dual-class share structure gives its founder, Mr. Jay Wenjie Xiao, **77.2% of the aggregate voting power**, limiting other shareholders' influence[413](index=413&type=chunk) [Item 4. Information on the Company](index=81&type=section&id=Item%204.%20Information%20on%20the%20Company) This section details the company's business model, history, regulatory environment, and complex VIE organizational structure [History and Development of the Company](index=81&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) This sub-section outlines key corporate milestones, including its founding, IPO, convertible note issuance, and headquarters development - The company commenced its online consumer finance business, Fenqile, in **October 2013**[463](index=463&type=chunk) - On December 21, 2017, the company's ADSs began trading on Nasdaq under the symbol 'LX', raising net proceeds of approximately **US$108.4 million**[463](index=463&type=chunk) - In September 2019, the company issued **US$300 million in convertible senior notes**, which were later amended to require full repayment by April 2024[464](index=464&type=chunk) [Business Overview](index=81&type=section&id=B.%20Business%20Overview) This sub-section describes the company's credit technology services, target users, risk management, and funding model within the PRC regulatory framework - The company connects young consumers with financial institutions through a model integrating online/offline channels and **AI-driven risk management**[469](index=469&type=chunk)[471](index=471&type=chunk) - Core services include **credit facilitation**, **tech-empowerment**, and an **installment e-commerce platform**[470](index=470&type=chunk)[472](index=472&type=chunk) User Statistics as of Dec 31, 2022 | Metric | Value | | :--- | :--- | | Registered Users | 189 million | | Users with Credit Line | 40.0 million | | Cumulative Active Users | 29.4 million | - The company utilizes a proprietary **'Hawkeye' engine** for credit assessment and risk management, leveraging big data and AI[492](index=492&type=chunk) - Funding is primarily sourced from institutional partners, which accounted for **100% of newly funded loans in 2022**[489](index=489&type=chunk) - The business is subject to a wide range of PRC regulations governing **Foreign Investment (VIE structure)**, **Online Consumer Finance**, and **Data Security**[522](index=522&type=chunk) [Organizational Structure](index=123&type=section&id=C.%20Organizational%20Structure) This sub-section details the VIE corporate structure and the contractual arrangements enabling control over its PRC operating entities - LexinFintech Holdings Ltd. is a Cayman Islands holding company that controls its PRC operating entities through a **VIE structure** due to foreign investment restrictions[727](index=727&type=chunk) - The contractual arrangements are designed to provide **effective control over the VIEs** and the right to receive substantially all economic benefits[728](index=728&type=chunk) - Key agreements underpinning the VIE structure include **Exclusive Business Cooperation Agreements**, **Powers of Attorney**, and **Equity Pledge Agreements**[730](index=730&type=chunk)[732](index=732&type=chunk)[733](index=733&type=chunk)[734](index=734&type=chunk) [Item 5. Operating and Financial Review and Prospects](index=127&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) This section provides management's analysis of financial results, liquidity, capital resources, and critical accounting estimates [Operating Results](index=128&type=section&id=A.%20Operating%20Results) This sub-section analyzes financial performance from 2020-2022, detailing revenue and cost trends, and key loan performance metrics Key Operating Metrics (in RMB millions, except user numbers) | Metric | 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | Outstanding principal balance | 76,480 | 85,930 | 99,618 | | Originations | 176,679 | 213,807 | 204,585 | | Active users (thousands) | 12,927 | 14,167 | 9,694 | Consolidated Results of Operations (in RMB millions) | Metric | 2020 | 2021 | 2022 | | :--- | :--- | :--- | :--- | | Total operating revenue | 11,645 | 11,381 | 9,866 | | Gross profit | 3,633 | 5,749 | 3,035 | | Net income | 595 | 2,334 | 826 | - **Operating revenue decreased by 13.3% in 2022**, primarily due to lower credit facilitation and tech-empowerment service income[800](index=800&type=chunk)[801](index=801&type=chunk)[803](index=803&type=chunk) - The **90 day+ delinquency ratio increased to 2.53%** as of December 31, 2022, attributed to the negative impact of COVID-19[766](index=766&type=chunk)[770](index=770&type=chunk) - **Provision for contingent guarantee liabilities increased by 136%** in 2022 to RMB 1,468 million[806](index=806&type=chunk) [Liquidity and Capital Resources](index=146&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) This sub-section details the company's funding sources, cash position, debt obligations, and material cash requirements Cash and Cash Equivalents | As of Dec 31 | Amount (RMB millions) | | :--- | :--- | | 2020 | 1,564 | | 2021 | 2,664 | | 2022 | 1,494 | Summary of Cash Flows (Year Ended Dec 31, 2022, RMB in millions) | Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | 98.8 | | Net cash used in investing activities | (2,409.0) | | Net cash provided by financing activities | 1,111.7 | - As of December 31, 2022, total **funding debts amounted to RMB 5.72 billion**[849](index=849&type=chunk)[850](index=850&type=chunk) - The company has **US$300 million in convertible senior notes outstanding**, which must be paid in full by April 2024 per a March 2023 amendment[842](index=842&type=chunk)[869](index=869&type=chunk) - **Capital expenditures for 2023 are expected to be approximately RMB 122 million**, primarily for its new headquarters[864](index=864&type=chunk) [Critical Accounting Estimates](index=153&type=section&id=E.%20Critical%20Accounting%20Estimates) This sub-section identifies key estimates requiring significant management judgment, including credit loss allowances and revenue recognition - The allowance for credit losses is a critical estimate determined using a **Current Expected Credit Losses (CECL) model**[879](index=879&type=chunk)[880](index=880&type=chunk) - The fair value of financial guarantee derivatives, a **Level 3 measurement**, is determined using a discounted cash flow model[882](index=882&type=chunk)[883](index=883&type=chunk) - **Revenue recognition for loan facilitation fees** involves significant judgment in allocating the transaction price to performance obligations[884](index=884&type=chunk)[886](index=886&type=chunk) [Item 6. Directors, Senior Management and Employees](index=155&type=section&id=Item%206.%20Directors%2C%20Senior%20Management%20and%20Employees) This section provides information on the company's leadership, compensation, board structure, and employee composition Executive Officers and Directors | Name | Position/Title | | :--- | :--- | | Jay Wenjie Xiao | Chief Executive Officer and Chairman of the Board | | Jared Yi Wu | President and Director | | James Xigui Zheng | Chief Financial Officer and Director | | Shirley Yunwen Yang | Chief Human Resources Officer | | Jason Ming Zhao | Chief Marketing Officer | | Erwin Yong Lu | Chief Technology Officer | - For fiscal year 2022, the company paid an aggregate of approximately **RMB 26.9 million in cash to its executive officers** and RMB 1.6 million to non-executive directors[902](index=902&type=chunk) - The company has a **2017 Share Incentive Plan** allowing for the grant of options, restricted shares, and restricted share units[907](index=907&type=chunk) Employee Breakdown by Function (as of Dec 31, 2022) | Function | Number of Employees | % of Total | | :--- | :--- | :--- | | Sales and marketing | 2,514 | 64.9% | | Research and development | 602 | 15.5% | | Risk management | 387 | 10.0% | | General and administrative | 244 | 6.4% | | Installment e-commerce and Operations | 125 | 3.2% | | **Total** | **3,872** | **100%** | - As of February 28, 2023, founder Jay Wenjie Xiao beneficially owns **77.2% of the aggregate voting power** through his holdings of Class B ordinary shares[935](index=935&type=chunk)[938](index=938&type=chunk) [Item 7. Major Shareholders and Related Party Transactions](index=165&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) This section details transactions with major shareholders and other related parties, including entities controlled by management family members - The company operates its business through **VIEs based on a series of contractual arrangements** due to PRC laws restricting foreign ownership[942](index=942&type=chunk) - In 2022, transactions with entities controlled by an immediate family member of senior management for collection services amounted to **RMB 16.2 million**[944](index=944&type=chunk) - The company provided a loan to L.P. Technology Holdings Limited, an equity investee, with **RMB 6.6 million due** as of December 31, 2022[946](index=946&type=chunk) [Item 8. Financial Information](index=167&type=section&id=Item%208.%20Financial%20Information) This section presents the audited financial statements, discusses past legal proceedings, and outlines the company's dividend policy - Two putative federal securities class actions filed against the company in 2020 were **both dismissed by December 2021**[950](index=950&type=chunk) - The company has **no present plan to pay cash dividends** and intends to retain future earnings to operate and expand its business[952](index=952&type=chunk) - As a holding company, its ability to pay dividends is dependent on receiving dividends from its PRC subsidiaries, which is **subject to PRC laws and regulations**[952](index=952&type=chunk) [Item 10. Additional Information](index=168&type=section&id=Item%2010.%20Additional%20Information) This section provides details on corporate governance, articles of association, and material tax consequences for investors [Memorandum and Articles of Association](index=168&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Association) This sub-section summarizes key provisions of the company's governing documents, including its dual-class share structure and voting rights - The company has a **dual-class share structure** where each Class A share has one vote and each Class B share has ten votes[960](index=960&type=chunk) - A **special resolution**, requiring a two-thirds majority vote, is needed for important matters like amending the articles of association[962](index=962&type=chunk) - Anti-takeover provisions include the board's authority to **issue preferred shares without shareholder approval**[974](index=974&type=chunk) [Taxation](index=173&type=section&id=E.%20Taxation) This sub-section details tax implications in the Cayman Islands, PRC, and U.S., including risks of PRC residency and PFIC classification - The Cayman Islands, where the company is incorporated, **does not levy taxes on profits, income, gains, or dividends**[991](index=991&type=chunk) - If deemed a **PRC resident enterprise**, the company could be subject to a 25% tax on its global income and a 10% withholding tax on dividends to non-resident shareholders[994](index=994&type=chunk)[996](index=996&type=chunk) - The company believes it was not a **Passive Foreign Investment Company (PFIC)** for 2022 but notes a continued decline in its ADS price increases this risk for future years[1007](index=1007&type=chunk)[1008](index=1008&type=chunk) [Item 11. Quantitative and Qualitative Disclosures about Market Risk](index=179&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate risk and foreign exchange risk - The company's primary market risks are **interest rate risk** and **foreign exchange risk**[1026](index=1026&type=chunk)[1029](index=1029&type=chunk) - The company does not expect a material impact from interest rate fluctuations and **does not use derivatives for hedging**[1027](index=1027&type=chunk) - **Foreign exchange risk exists** as revenues are in RMB while ADSs are traded in USD, and the company does not currently hedge this risk[1029](index=1029&type=chunk) [Item 15. Controls and Procedures](index=182&type=section&id=Item%2015.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and internal control over financial reporting - Management concluded that as of December 31, 2022, the company's **disclosure controls and procedures were effective**[1038](index=1038&type=chunk) - Based on the COSO framework, management concluded that the company's **internal control over financial reporting was effective** as of December 31, 2022[1039](index=1039&type=chunk) - The independent auditor, PricewaterhouseCoopers Zhong Tian LLP, audited and **confirmed the effectiveness of the company's internal control** over financial reporting[1042](index=1042&type=chunk) [Item 16. Other Information](index=183&type=section&id=Item%2016.%20Other%20Information) This section covers accountant fees, share repurchase programs, corporate governance practices, and HFCAA compliance status Principal Accountant Fees (USD) | Fee Type | 2021 | 2022 | | :--- | :--- | :--- | | Audit fees | 2,630,602 | 2,448,442 | | Tax fees | 85,828 | 142,812 | | Other service fees | 308,285 | 125,964 | - The company announced a **US$50 million share repurchase program** in March 2022 and an additional **US$20 million program** in November 2022[1049](index=1049&type=chunk) ADS Repurchases under March 2022 Program (as of March 31, 2023) | Period | Total ADSs Purchased | | :--- | :--- | | Mar 2022 | 1,398,881 | | Apr 2022 | 4,354,136 | | May 2022 | 396,262 | | Jun 2022 | 7,075,381 | | Jul 2022 | 3,238,744 | | Aug 2022 | 1,538,277 | | Sep 2022 | 1,902,479 | | Oct 2022 | 1,871,588 | | Nov 2022 | 385,924 | | Dec 2022 | 23,146 | - As a **'controlled company'** and foreign private issuer, the company follows certain home country corporate governance practices instead of Nasdaq rules[1053](index=1053&type=chunk)[1054](index=1054&type=chunk) - The company **does not expect to be identified as a Commission-Identified Issuer** under the HFCAA for the 2022 fiscal year[1055](index=1055&type=chunk) [PART III](index=186&type=section&id=PART%20III) [Financial Statements](index=186&type=section&id=Item%2018.%20Financial%20Statements) This section contains the complete audited consolidated financial statements and accompanying notes for fiscal years 2020-2022 [Report of Independent Registered Public Accounting Firm](index=192&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) This sub-section presents the auditor's unqualified opinion on the financial statements and internal controls, noting key audit matters - The auditor, PricewaterhouseCoopers Zhong Tian LLP, issued an **unqualified opinion** on both the financial statements and the effectiveness of internal control[1072](index=1072&type=chunk) - A change in accounting principle was noted for 2020 with the adoption of the **CECL (Current Expected Credit Losses) methodology**[1072](index=1072&type=chunk)[1169](index=1169&type=chunk) - **Critical Audit Matters** identified were revenue recognition, expected credit losses, and fair value measurement of financial guarantee derivatives[1079](index=1079&type=chunk)[1084](index=1084&type=chunk)[1087](index=1087&type=chunk) [Notes to Consolidated Financial Statements](index=203&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of accounting policies, including revenue recognition, CECL, and fair value measurements - Starting in 2022, the company updated its revenue presentation to three categories: **Credit facilitation**, **Tech-empowerment**, and **Installment e-commerce**[1120](index=1120&type=chunk) - The adoption of the **CECL methodology (ASC 326)** on January 1, 2020 resulted in a cumulative-effect decrease to opening retained earnings of approximately RMB 1.9 billion[1169](index=1169&type=chunk)[1173](index=1173&type=chunk) - As of December 31, 2022, **restricted net assets amounted to RMB 5.0 billion**, representing 57.8% of consolidated net assets[1400](index=1400&type=chunk) - Total **share-based compensation expense was RMB 156.3 million** for the year 2022[1402](index=1402&type=chunk)

LexinFintech Holdings Ltd. (NASDAQ:LX) Q4 2022 Earnings Conference Call March 13, 2023 9:30 PM ET Company Participants Jamie Wang - Investor Relations Manager Jay Xiao - Chairman and Chief Executive Officer James Zheng - Chief Financial Officer Jared Wu - President Conference Call Participants Yada Li - CICC Alex Ye - UBS Operator Good day, and thank you for standing by. Welcome to LexinFintech's Fourth Quarter and Full-Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only ...

LexinFintech Holdings Ltd. (NASDAQ:LX) Q3 2022 Earnings Conference Call November 16, 2022 8:30 PM ET Company Participants Echo Yan - Investor Relations Director Jay Xiao - Chairman and Chief Executive Officer Sunny Sun - Chief Financial Officer Jared Wu - President Conference Call Participants Hans Fan - CLSA Frank Zheng - Credit Suisse Alex Ye - UBS Operator Good day, and thank you for standing by. Welcome to the LexinFintech's Third Quarter 2022 Earnings Conference Call. At this time, all participants are ...

LexinFintech Holdings Ltd. (NASDAQ:LX) Q2 2022 Earnings Conference Call August 16, 2022 9:30 PM ET Company Participants Echo Yan - Investor Relations Director Jay Xiao - Chairman and Chief Executive Officer Sunny Sun - Chief Financial Officer Jayden Qiao - Chief Risk Officer Conference Call Participants Yada Li - CICC Alex Ye - UBS Hans Fan - CLSA Operator Thank you all for standing by, and welcome to the LexinFintech Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a list ...

Financial Data and Key Metrics Changes - In Q1 2022, loan origination volume reached RMB 43.2 billion, with an outstanding loan balance of RMB 83.8 billion, reflecting a slight drop of 2.5% quarter-over-quarter [6][16] - The net profit declined to RMB 81 million in Q1 2022, but the business remained profitable, with cash reserves at RMB 5.6 billion, up 9% year-over-year [19][20] - The contribution from non-credit driven services increased to 47.7% of total operating revenue, up by 10 percentage points year-over-year [20] Business Line Data and Key Metrics Changes - Non-credit driven services accounted for 47.7% of total revenue, indicating a strategic shift towards revenue diversification [7][20] - The APR for loans decreased to 25%, with 78% of loan originations priced within 24% APR, up by 40.5% year-over-year [7][16] Market Data and Key Metrics Changes - The company reported that nationwide partners accounted for 76% of total funding in Q1 2022, up by more than 10% from the previous quarter [17] - Loans to small and micro businesses amounted to RMB 4.24 billion, reflecting a 9.5% increase quarter-over-quarter [7] Company Strategy and Development Direction - The company is focusing on three strategic priorities: strengthening management of existing customers, enhancing revenue structure for diversification, and optimizing management systems for operational efficiency [8][20] - The management emphasized the importance of maintaining asset quality over pursuing scale, especially in the current uncertain macroeconomic environment [5][8] Management's Comments on Operating Environment and Future Outlook - The management acknowledged the challenges posed by COVID-19 and external factors such as inflation and geopolitical tensions, but expressed confidence in navigating these challenges [4][9] - The company expects loan origination volume in Q2 2022 to be higher than Q1, despite the uncertainty in achieving a 10% loan growth target for the year [8][29] Other Important Information - The company has facilitated over RMB 702 billion in loans since inception, with a user base of over 171 million [5] - The management has been proactive in adjusting operations and strategies in response to external changes, focusing on risk management and operational efficiency [5][11] Q&A Session Summary Question: Outlook for take rate and its impact on asset quality - The management aims to maintain a take rate around 3% for the full year, with expectations of stable funding costs and improved risk management [22][24] Question: Full year loan growth targets - The management has not changed the full year loan growth guidance, maintaining optimism for economic recovery [28][29] Question: Changes in lending standards and customer profiles - The company is focusing on managing existing customers and exploring their potential, while also tightening lending standards for new borrowers [34][36] Question: Strategy for the Maiya business amid COVID - The Maiya business is adapting by enhancing online capabilities and supporting offline brands to increase sales volume [38]

Financial Performance - The company originated RMB214 billion (US$33.6 billion) in loans in 2021, representing a year-on-year increase of 21%[401]. - As of December 31, 2021, the average user loan balance was RMB8,753 (US$1,374), up from RMB8,125 in 2020[401]. - The total operating revenue was RMB11,381 million (US$1,786 million) in 2021, with contributions from technology-driven platform services exceeding 30%[394]. - The outstanding balance of funds provided by institutional funding partners increased from RMB52.1 billion in 2019 to RMB88.6 billion (US$13.9 billion) in 2021[408]. - The loan origination generated by serving SME owners reached RMB15.3 billion in 2021, accounting for 7.1% of total loan origination[393]. - The company served more than 36.9 million users, with over 60% being urban working population and more than 5% being SME owners as of December 31, 2021[400]. - The company added 14 new funding partners in 2021, cumulatively serving over 130 funding partners by year-end[408]. Research and Development - Research and development expenses in 2021 amounted to RMB 549 million (US$ 86.2 million), representing a year-on-year increase of 15.8%[423]. - The company has developed over 60,300 decisioning rules using 22,000 potential data variables, accumulating data from over 36.9 million users and 249.9 million credit applications since inception[416]. - The proprietary Hawkeye system supports various analytical techniques and model outputs, including traditional regression models and artificial intelligence[415]. - The company has built a high-accuracy customer profiling and risk modeling system based on thousands of variables from extensive data resources[421]. - The company has registered 165 patents in China and applied for 385 additional patents, along with 202 software copyrights[439]. Data Security and Compliance - The company has received ISO/IEC 27701:2019 certification for its data security and privacy protection efforts, indicating compliance with international standards[426]. - The company has formed strategic cooperation with Qi'anxin, a leading information security company, to enhance data security practices in consumer finance[425]. - The PRC Foreign Investment Law, effective January 2020, replaces previous laws and establishes a unified legal framework for foreign investment in China[445]. - The 2021 Negative List reduces the number of industries with restrictions on foreign investment, expanding permitted sectors[445]. - Foreign investors must report investment activities through the Enterprise Registration System and National Enterprise Credit Information Publicity System since January 1, 2020[445]. - The Security Review Mechanism for foreign investments, effective January 18, 2021, requires declarations for investments in sensitive sectors[446]. - The company operates value-added telecommunication services through consolidated variable interest entities to comply with foreign investment restrictions[451]. Regulatory Environment - The company must comply with regulations requiring real identity authentication for online audio-visual information service providers[461]. - The CAC's amended provisions require providers to implement strict user registration and verification processes, including measures like compound verification based on mobile phone numbers and identity card numbers[464]. - The Circular 141 specifies that cash loans must not exceed an annualized interest rate limit set by the Supreme People's Court, and loans to borrowers without income sources are prohibited[465]. - Commercial banks are restricted from granting individual credit lines exceeding RMB200,000 and must ensure that the loan term does not exceed one year for lump-sum repayments[468]. - The Civil Code of PRC stipulates that interest rates under loan agreements must comply with applicable laws, and advance deduction of interest from loan proceeds is prohibited[472]. - The Supreme People's Court's amendments to private lending interest rates now set the upper limit based on the Quadruple LPR Limit, replacing previous thresholds of 24% and 36%[475]. - The CBIRC's guidelines prohibit marketing loans to individuals unable to repay and restrict lending services to college students under 18[478]. Consumer Protection and Advertising - The Measures for Financial Consumer Protection, effective November 1, 2020, require non-bank payment institutions to implement internal management measures to protect financial consumers' rights[562]. - The Advertising Law, amended in April 2021, mandates that advertisements must be authentic and legal, with penalties for violations including fines and orders to cease dissemination[563]. - The Internet Advertising Interim Measures, effective September 2016, require internet advertisers to ensure the authenticity of advertisement content and to clearly mark advertisements[564]. - The Circular 316, effective January 25, 2020, prohibits unqualified market players from conducting financial marketing campaigns[565]. - The E-Commerce Law requires e-commerce operators to respect and protect consumers' legitimate rights and provide options without targeting personal characteristics[569]. Financial Operations and Licensing - The company operates network microcredit businesses through Ji'an Microcredit, which holds a valid network microcredit license updated in July 2021, expiring in July 2023[501]. - The registered capital for a network microcredit business must not be less than RMB1 billion, and it is prohibited to use loans for investments in bonds, stocks, or to repay mortgage loans[500]. - The financing balance of microcredit companies funded by bank loans and shareholder loans must not exceed the company's net assets[499]. - Microcredit companies are restricted from upfront deduction of interest and fees from loans, ensuring borrowers only repay the actual loan amount[499]. - Outstanding guarantee liabilities of a financing guarantee company must not exceed ten times its net assets, with specific limits on liabilities to the same guaranteed party[505]. Intellectual Property - The company has registered 165 patents in China and applied for 385 additional patents with the PRC State Intellectual Property Office[583]. - The company has registered 202 software copyrights and 3 copyrights for artworks with the PRC National Copyright Administration[583]. - The company holds 160 registered domain names, including lexin.com, lexinfintech.com, and fenqile.com[583]. - The company has 446 registered trademarks, including "LEXIN乐信," "Fenqile," and others[583].

LexinFintech Holdings Ltd. (NASDAQ:LX) Q4 2021 Earnings Conference Call March 15, 2022 9:30 PM ET Company Participants Patricia Cheng - Investor Relations Jay Xiao - Chairman & Chief Executive Officer Sunny Sun - Chief Financial Officer Jayden Qiao - Chief Risk Officer Conference Call Participants Yada Li - CICC Ethan Wang - CLSA Operator Good day and thank you for standing by. Welcome to the LexinFintech Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a lis ...

Financial Data and Key Metrics Changes - Loan origination increased by 15.6% year-on-year to RMB 255.9 billion, with 42.9% priced within 24%, up from 37.6% in the previous quarter [5][6] - Total operating revenue reached RMB 2.97 billion, down 5.9% year-on-year, while gross margins increased by 54% to RMB 1.5 billion, with gross margin percentage advancing by almost 20 percentage points year-over-year [6][7] - Net profit rose over 68% year-on-year to RMB 551 million, with a stable take rate of 3.5% quarter-over-quarter [7] Business Line Data and Key Metrics Changes - The company has shifted focus towards quality over scale, resulting in a measured slowdown in top-line metrics [6] - The average APR for September intake was 26.8%, down 1.4 percentage points from June, reflecting a move away from high APR borrowers [5] Market Data and Key Metrics Changes - The 90-day plus delinquency ratio remained unchanged at 1.85%, indicating stable asset quality despite regulatory changes [8][12] - Loan origination to small and micro business owners increased by 32% to RMB 5.2 billion [13] Company Strategy and Development Direction - The company is rebalancing its business structure in response to regulatory developments, focusing on reducing risk and improving efficiency [12] - The strategy includes enhancing the product and service model for Maiya, which saw GMV reach RMB 473 million in Q3, with offline contributions nearly doubling from previous quarters [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by regulatory changes but expressed confidence in maintaining profitability and operational efficiency [7][12] - The company plans to complete the transition to the 24% pricing policy by June next year, aiming to maintain a healthy take rate during this period [19][20] Other Important Information - The company is investing in technology upgrades and talent acquisition to enhance its operational capabilities and risk management [10][11] - G&A expenses decreased by 17% quarter-on-quarter, reflecting improved operational efficiency [12] Q&A Session Summary Question: Guidance on loan origination amount and outlook for Q4 - Management expects to maintain full-year guidance on loan originations, anticipating some temporary volatility due to regulatory adjustments [17] Question: Timing for pricing transition completion - The company targets to finish the transition by June next year, with a focus on minimizing the impact on take rate [19][20] Question: Asset quality outlook - Management noted that while short-term risk may experience volatility, long-term asset quality is expected to remain stable [21] Question: Data feed disconnection requirements - The company is actively working with credit bureaus to comply with new PBOC requirements, with minimal expected changes to cost structure [26][28] Question: Profit sharing model and funding costs - Profit sharing contributed 43.7% of overall GMV in Q3, while funding costs remained stable at 7.4% [29] Question: Maiya business model development - The company is focused on enhancing merchant value and improving transaction activities before scaling the Maiya business [32][34] Question: Long-term interest rate reduction plans - Management has not received guidance on reducing long-term interest rates below 24% and remains confident in maintaining profitability even if rates decrease [36][37]